1. Consider a European put option on Modana with a strike price of $40 and...
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1. Consider a European put option on Modana with a strike price of $40 and four months until expiration. Modana's stock price follows this process with equal probabilities: 60 30 15 A three-year coupon bond that pays coupon annually is selling at par with 8 percent annual coupon rate. Assume that Modana's stock pays no dividend. a. What is the price of the put option? ~ b. Create a portfolio that duplicates the payoffs of the put option. c. How much does the duplicating portfolio cost
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