A stock price is currently 20 it is known at the end of one, Financial Management

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A stock price is currently 20 it is known at the end of one

A stock price is currently $20. It is known at the end of one month it will either by $23 or $18. The risk free rate is 6%. Suppose S_T is the stock price at the end on one month.

a. What will be the value of a derivative that pays 2S_T-40 at this time?

b. What will be the value of a derivative that pays 2S_T-20 at this time?

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Financial Management: A stock price is currently 20 it is known at the end of one

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