12. A call option is written on a stock whose current price is $50. The option has...
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12. A call option is written on a stock whose current price is $50. The option has maturity of three years, and during this time the annual stock price is expected to increase by 25 percent or to decrease by 10 percent.
The annual interest rate is constant at 6 percent. The option is exercisable at date 1 at a price of $55, at date 2 for a price of $60, and at date 3 for a price of $65. What is its value today? Will you ever exercise the option early?
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