Ringling Cycle’s stock price is now $20. You need to find the value of a call option with a strike price of $22 that expires in 2 months.

You want to use the binomial model with 2 periods (each period is a month). Your assistant has calculated that u = 1.1553, d = 0.8656,

π_u = 0.4838, and π_d = 0.5095. Draw the binomial lattice for stock prices. What are the possible stock prices after 1 month? ($23.11 or $17.31) After 2 months? ($26.69, $20, or $14.99) What are the option’s possible payoffs at expiration? ($4.69, $0, or $0) What will the option’s value be in 1 month if the stock goes up? ($2.27)

What will the option’s value be in 1 month if the stock price goes down? ($0) If each month is 1/12 of a year, what is the current value of the option?