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6) A stock is currently selling at $40. Over each of the next two three-month periods, the stock may move up to a factor 1.20
6) A stock is currently selling at $40. Over each of the next two three-month periods, the stock may move up to a factor 1.20 or down by a factor of 0.80 each period. A call option with strike price of $42 and maturity of six months is available. The current risk-free rate is 6% per year (total: 20 points) a. Is the call option in the money, at money, or out the money? (1 point) b. Find the price of the call option using the binomial tree approach. (8 points) c. Find the time value of the call option. (1 point) d. Find the value of a put option with same strike price and maturity you may use either the binomial tree approach or put-call parity to find the put value) (8 point) e. is the put option in the money or out the money? Explain (1 point) f. Find the time value of this put option (1 point) at does not
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