Use DerivaGem to calculate the value of an American put option on a non-dividend-paying stock when the stock price is $40, the strike price is $42, the risk-free rate is 5%, the volatility is 35%, and the time to maturity is 1

Finance Nov 13, 2020

Use DerivaGem to calculate the value of an American put option on a non-dividend-paying stock when the stock price is $40, the strike price is $42, the risk-free rate is 5%, the volatility is 35%, and the time to maturity is 1.5 years. (Choose Binomial American for the “option type” and 50 timesteps.)

a. What is the option’s intrinsic value?

b. What is the option’s time value?

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