What is the option price

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Question: The current price of a non-dividend paying stock is $100. Use a two-step Binomial tree to value a European cash-or-nothing option on the stock that expires in 6 months and will then pay out $200 if the stock price in 6 months is less than $85. Each step in the model is 3 months, the risk free rate is 20% per annum with continuous compounding. What is the option price when u = 1.2 and d = 1/u?

Reference no: EM133290617

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