Problem 1: (10 points) Two stage Options A stock price is currently $50. Over each of the next two three-month periods

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Problem 1: (10 points) Two stage Options A stock price is currently $50. Over each of the next two three-month periods

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Problem 1: (10 points) Two stage
Options
A stock price is currently $50. Over each of the next two
three-month periods it is expected to go up by 6% or down by 5%.
The risk-free interest rate is 6% per annum with continuous
compounding. What is the value of a six-month European put option
with a strike price of $51?
** All formulas and work should be shown on the paper to get
credit. Use the formula method.
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