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# A stock price is currently \$40. Over each of the next two three-month periods it is...

A stock price is currently \$40. Over each of the next two three-month periods it is expected to go up by10%. The risk-free interest rate is 12% per annum with continuous compounding.
(a) What is the value of a six-month European put option with a strike price of \$42?
(b) What is the value of a six-month American put option with strike price of \$42?

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Answer #1

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A.

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