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1. Consider a European call option on the stock of XYZ with strike $65 and one month to expiration. XYZ stock does not pay dividends

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1. Consider a European call option on the stock of XYZ with strike $65 and one month to expiration. XYZ stock does not pay dividends and is currently worth S75. The annual continuously compounded risk-free interest rate is 6%. In one month the price is expected to be either S95 or $63. Find C using the risk-neutral approach as discussed in this section. Answer: 11.54

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