Question

A stock index’s value is 633, a European put on the index has two years until expiration, and an exercise price of 625. The index’s volatility is 14% per year, its dividend yield is 1.7% per year, and the risk-free interest rate is 2.8% per year. According to a two-period binomial option pricing model, what is the option’s value?

1)

$36.88

2)

$35.22

3)

$29.82

4)

$40.14

5)

$31.06

Answer 1