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A stock price is currently $50. Over each of the next two 3-month periods it is...

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Finance

A stock price is currently $50. Over each of the next two3-month periods it is expected to go up by 6% or down by 5%. Therisk-free rate is 5% per annum with continuous compounding. What isthe value of a six-month European call option with a strike priceof $51?

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3.8 Ratings (597 Votes)
u 106 as stock price can go up by 6 and d 095 as stock price can go down by 5 RiskFree Rate 5 Tenure of Option 6 months and Time Interval 3 months each    See Answer
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A stock price is currently $50. Over each of the next two3-month periods it is expected to go up by 6% or down by 5%. Therisk-free rate is 5% per annum with continuous compounding. What isthe value of a six-month European call option with a strike priceof $51?

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