The following information applies to the next two questions.
One-year interest rates are 5%. A stock currently sells for $40 and will either rise to $50 or fall to $35 in six months.
8. Using the binomial option pricing model, determine the fair value of a $45 call.
a. $1.45
b. $1.95
c. $2.75
d. $3.45
9. Using the binomial option pricing model, determine the fair value of a $45 put.
a. $3.89
b. $4.78
c. $5.86
d. $6.54
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