Question

There is a six month European call option available on XYZ stock with a strike price of $90. Build a two step binomial tree to value this option. The risk free rate is 2% (per period) and the current stock price is $100. The stock can go up by 20% each period or down by 20% each period.

Select one:

a. $14.53

b. $17.21

c. $18.56

d. $12.79

e. $19.20

Answer #1

Ans.

Strike Price (X)= $ 90

Risk free rate (r) = 2%

Current stock price = (S) = $100

US = 120

DS = 80

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