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1)Consider a stock worth $25 that can go up or down by 15 percent per period. The risk-free rate is rf = 10 percent. Use
1)Consider a stock worth $25 that can go up or down by 15 percent per period. The risk-free rate isrf= 10 percent. Use one binomial period.
a.Determine the two possible stock prices for the next period.
b.Determine the intrinsic values at expiration of a European call option with an exercise price of K = $25.
c.Find the value of the option today.
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