Homework Answers
Solution.>
I have solved it in Excel. The formula used are attached within the excel. If you still have any doubt, kindly ask in the comment section.
The price of the 2-period American Put option is $3.035
The formula used are:
The price of the 2-period European Put option is $2.652
The formula used are:
Early Exercise Premium = Price of the American option - Price of the European option
Early Exercise Premium = 0.3
Hence, the correct option is (C).
Solution 5.>
When the stock starts to pay dividend, the price of the American put option will increase and hence the early exercise premium of the put option will also increase.
Hence, the correct option is (B).
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True/False
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