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  3. a stock price is currently $39. it is known that i

A stock price is currently $39. It is known that in six months it will...

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Finance

A stock price is currently $39. It is known that in six months it will be either $42 or $36. The quarterly-compounding risk-free rate of interest is 8% per annum.

(a) What is the continuously-compounding interest rate?

(b) A European put option on the stock has $40 strike price and six-month maturity. Use the risk-neutral approach to calculate the value of put option.

(c) Does the no-arbitrage argument in delta method leads to the same value? Show the details.

(d) What will be the value if the put option is American?

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