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show the solution in details Use the binomial option pricing model to find the value...

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Finance

show the solution in details

Use the binomial option pricing model to find the value of a call option on 10,000 with a strike price of 12,500. The current exchange rate is 1.50/1.00 and in the next period the exchange rate can increase to 2.40/ or decrease to 0.9375/1.00 (i.e. u = 1.6 and d = 1/u = 0.625). The current interest rates are i = 3% and are i = 4%. Choose the answer closest to yours. the answer is

A) 3,275

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