Strike price is 95 and current stock price is 100 Time to expiration is 2 years and the stock pays no dividends. Price of a put is 0.75. This price is calculated using a 2-step binomial mode step one year in length. The stock price tree is shown below:

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
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12. You are given the following information about European options on stock ABC:
Strike price is 95 and current stock price is 100
Time to expiration is 2 years and the stock pays no dividends.
Price of a put is 0.75. This price is calculated using a 2-step binomial model where each
step
one year in length.
The stock price tree is shown below:
121
110
100
99
90
81
Calculate the price of the call on stock ABC with strike price 95 if the continuously
compounded risk-free interest rate is 5%. (Hint: use put-call parity)
Transcribed Image Text:12. You are given the following information about European options on stock ABC: Strike price is 95 and current stock price is 100 Time to expiration is 2 years and the stock pays no dividends. Price of a put is 0.75. This price is calculated using a 2-step binomial model where each step one year in length. The stock price tree is shown below: 121 110 100 99 90 81 Calculate the price of the call on stock ABC with strike price 95 if the continuously compounded risk-free interest rate is 5%. (Hint: use put-call parity)
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