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4. Two-State Option Pricing Model The price of Ervin Corp. stock will be either $74 or $96 at the end of the year. Call options

4. Two-State Option Pricing Model The price of Ervin Corp. stock will be either $74 or $96 at the end of the year. Call options are avallable with one year to expiration. T-bills curtreatly yleid 5 percent. a. Suppose the current price of Ervin stock is $80. What is the value of the call option it the exercise price is $70 per share? b. Suppose the exercise price is $90 in part (a). What is the value of the call aption now?

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