 Solution

ID: past-exam-of-the-mathematics-course-of-the-university-of-cambridge/2006/ii/paper-1/28i/a/solution

Codex  0 Created 2026-09-24 Updated 2026-10-14

The terminal European put pays zero at the upper and middle nodes and

864 - 384 = 480

at the lower one. Its probability is

(1 - p)^{2} = 1/9

. Thus

V_{0} = R^{- 2} \frac{480}{9} = 30.

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