Imagine that Googles stock price will either rise by 25% or fall by 20% over the next
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Imagine that Google’s stock price will either rise by 25% or fall by 20% over the next six months (see Section 21-1). Recalculate the value of the call option (exercise price $430)
using ( a ) the replicating portfolio method and ( b ) the risk-neutral method. Explain intuitively why the option value falls from the value computed in Section 21-1.
AppendixLO1
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