The binomial tree below describes the two-year evolution of the price of a non-dividend- paying stock (each time-step is one year). So = $10.00 Su = $12.00 Sa = $9.00 Suu = $14.40 Sud = Sdu = $10.80 Sad = $8.10 Calculate the price of a two-year European call on the stock, with a strike price of $8.00, given that the risk-free interest rate is 4% p.a. (Enter your answer as a number rounded to two decimal places. So, if the value of the option is $1.23, you should enter 1.23 as your answer.)
The binomial tree below describes the two-year evolution of the price of a non-dividend- paying stock (each time-step is one year). So = $10.00 Su = $12.00 Sa = $9.00 Suu = $14.40 Sud = Sdu = $10.80 Sad = $8.10 Calculate the price of a two-year European call on the stock, with a strike price of $8.00, given that the risk-free interest rate is 4% p.a. (Enter your answer as a number rounded to two decimal places. So, if the value of the option is $1.23, you should enter 1.23 as your answer.)
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
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:The binomial tree below describes the two-year evolution of the price of a non-dividend-
paying stock (each time-step is one year).
So
= $10.00
Su = $12.00
Sa = $9.00
Suu = $14.40
Sud =
Sdu = $10.80
Sad = $8.10
Calculate the price of a two-year European call on the stock, with a strike price of $8.00,
given that the risk-free interest rate is 4% p.a. (Enter your answer as a number rounded to
two decimal places. So, if the value of the option is $1.23, you should enter 1.23 as your
answer.)
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