Two-State Option Pricing Model The price of Tara, Inc., stock will be either $60 or $80 at
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Two-State Option Pricing Model The price of Tara, Inc., stock will be either $60 or $80 at the end of the year. Call options are available with one year to expiration. T-bills currently yield 5 percent.
a. Suppose the current price of Tara stock is $70. What is the value of the call option if the exercise price is $45 per share?
b. Suppose the exercise price is $70 in part (a). What is the value of the call option now? LO.1
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