(Pricing a call) All reliable analysts agree that a share of ABC Corporation, selling today for $50,...

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(Pricing a call) All reliable analysts agree that a share of ABC Corporation, selling today for $50, will be priced 1 year from now at either $65 or $45.

They further agree that the probabilities of these events are 0.6 and 0.4, respectively. The market risk-free rate is 3%.

a. What is the value of a call option on ABC whose exercise price is

$50 and which matures in 1 year?

b. How would your answer to part a be changed if the probabilities of these events are 0.5 and 0.5, respectively?

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Principles Of Finance Wtih Excel

ISBN: 9780190296384

3rd Edition

Authors: Simon Benninga, Tal Mofkadi

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Question Posted: Jun 10, 2024 02:01 AM

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(Pricing a call) All reliable analysts agree that a share of ABC Corporation, selling today for $50,...

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Principles Of Finance Wtih Excel

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