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What is the value of the american put

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Let a two-period binomial tree be given with the following parameters: S = $100, u= 1.10, d= 0.90, and rf= 5 percent. Consider a two-period American put option with a strike of $90. Note that this put is quite deep out-of-the-money at inception.

a. What is the value of the American put given these parameters?

b. Now suppose a dividend of $4 is paid at the end of the first period. What is the new price of the put?

Reference no: EM132707663

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