SOA Exam FAM Sample Question 108
Study guide: Exam FAM
A put option has strike price 70 and matures in one year. You are given:
(i) The current price of the underlying stock is 75.
(ii) The stock price in one year will be either 100 or 60.
(iii) The true probability of an upward price movement is 40%.
(iv) The continuously compounded risk-free interest rate is 3%.
Calculate the price of the option.
- A) 5.51
- B) 5.82
- C) 6.53
- D) 7.92
- E) 8.27
Answer this question and see the worked solution