16.

a. Calculate the option value for a two-period European call option with the following terms:

Current price of underlying asset = $100, Strike price = $10, One-period, risk-free rate = 5%.

The stock price can either go up or down by 10% at the end of one period.

b. Recalculate the value for the option when the stock price can move either up or down by 50% at the end of one period. Compare your answer with the calculated value in part (a).