SOA Exam FAM Sample Question 103
Study guide: Exam FAM
The price movements of a non-dividend paying stock are modeled by a binomial tree with one-year periods.
You are given:
(i) The current price of the stock is 100.
(ii) u = 1.24
(iii) The risk-neutral probability of an up move is 0.406.
(iv) The continuously compounded risk-free interest rate is 2%.
The price of a 2-year K-strike European put option on the stock is 25.05.
Calculate K.
- A) 123.50
- B) 124.00
- C) 124.50
- D) 125.00
- E) 125.50
Answer this question and see the worked solution