Suppose that a stock price is currently 49 dollars, and it is known that one month from now, the price will be either 8 percent higher or 8 percent lower. Find the value of an American call option on the stock that expires one month from now, and has a strike price of 51 dollars. Assume that no arbitrage opportunities exist, and a risk-free interest rate of 7 percent.

Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter5: Financial Options
Section: Chapter Questions
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Suppose that a stock price is currently 49 dollars, and it is known that one month from now, the price will be either 8 percent higher or 8 percent lower. Find the value of an American call option on the stock that expires one month from now, and has a strike price of 51 dollars. Assume that no arbitrage opportunities exist, and a risk-free interest rate of 7 percent.
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