The stock price of Bravo Corp. is currently $100. The stock price a year from now will be either $160 or $60 with equal probabilities. The interest rate at which investors invest in riskless assets is 6%. Using the binomial OPM, the value of a put option with an exercise price of $135 and an expiration date 1 year from now should be worth ________ today.

Question

Quizplus · Accepted Answer

H = 11eaaae8_8b44_86d0_a4b8_5b13d439bfe7_TB6474_11 = -0.75
Selling the stock and buying a 1-year discounted note with a $160 face value will give the same payoff as investing in (1/.75) puts.
P = 0.75 11eaaae8_8b44_86d1_a4b8_cdaa1238d384_TB6474_11 = 38.21

The Stock Price of Bravo Corp