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The volatility of a non-dividend-paying stock whose price is $40, is 20%. The risk-free rate...

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Finance

The volatility of a non-dividend-paying stock whose price is $40, is 20%. The risk-free rate is 5% per annum (continuously compounded) for all maturities. Use a two-step tree to calculate the value of a derivative that pays off [max(! 39, 0)]" where ST is the stock price in four months.

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