c.Consider a call option with an exercise price of $105 and one year to expiration. The underlying stock pays no dividends and its current price is $100. The (risk-neutral) probabilities are a 50% chance of the stock price increasing to $130 and a 50 % chance of the stock price falling to $80. The risk free rate of interest is 4.75 % (per period). Determine the value of the option using the one- period binomial option pricing model.
c.Consider a call option with an exercise price of $105 and one year to expiration. The underlying stock pays no dividends and its current price is $100. The (risk-neutral) probabilities are a 50% chance of the stock price increasing to $130 and a 50 % chance of the stock price falling to $80. The risk free rate of interest is 4.75 % (per period). Determine the value of the option using the one- period binomial option pricing model.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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