What is the present discounted value of the call option? What would the present discounted value of the call option be if instead there is a 50% chance the stock will be worth $225 and a 50% chance the stock will be worth $25. Compare how the change affects the average value of the stock to the value of the call option.
What is the present discounted value of the call option? What would the present discounted value of the call option be if instead there is a 50% chance the stock will be worth $225 and a 50% chance the stock will be worth $25. Compare how the change affects the average value of the stock to the value of the call option.
Chapter20: Financing With Derivatives
Section: Chapter Questions
Problem 2P
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Call Option The annual interest rate is 10%. Someone offers you a call option that will give you the right (but not the obligation) to buy one stock for $150 next year. There is a 50% chance the stock will be worth $125 next year too. There is a 25% chance the stock will be worth $225 and a 25% chance the stock will be worth $25.
What is the
What would the present discounted value of the call option be if instead there is a 50% chance the stock will be worth $225 and a 50% chance the stock will be worth $25.
Compare how the change affects the average value of the stock to the value of the call option.
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