4. All reliable analysts agree that a share of ABC Corporation, selling today for $50, will be...

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4. All reliable analysts agree that a share of ABC Corporation, selling today for $50, will be priced at either $65 or $45 tomorrow. They further agree that the probabilities of these events are 0.6 and 0.4, respectively. The market risk-free rate is 6 percent. What is the value of a call option on ABC whose exercise price is $50 and which matures tomorrow?

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Financial Modeling

ISBN: 9780262024822

2nd Edition

Authors: Simon Benninga

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