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3) For a call option on a non dividend paying stock the stock price is $30,...

3) For a call option on a non dividend paying stock the stock price is $30, the strike price is $20, the risk free rate is 6% per annum, the volatility is 20% per annum    and the time to maturity is 3 months. Use the Binomial model to find:

            a) The price of the call option?

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Answer #1

ANSWER IN THE IMAGE ((YELLOW HIGHLIGHTED). FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.

u= e^(Standard deviation)*( Time each period/12)0.5
e^(0.20)*(3/12)^0.5
u= 1.25058
d=1/u= 0.79963

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