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## Finance

 Basic Finance Corporate Finance Financial Management Financial Econometrics Portfolio Management Risk Management Public Finance Business Law & Ethics

Suppose today's stock price of Book.com is \$100. With probability 60% the price will rise to \$130 in one year and with probability 40% it will fall to \$80 in one year. A European put option with a strike price of \$90 and a time to expiration of one year sells at \$4.

a) What is the one-year risk free rate implied by no-arbitrage (hint draw a binomial tree as we did in class)?

b) What would be the no-arbitrage risk free rate if with a probability of 50% the price increases and with a probability of 50% it decreases, keeping all other values constant? describe

Basic Finance, Finance

• Category:- Basic Finance
• Reference No.:- M941119

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