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A call option is written on a stock whose current price is $50. The option has maturity of 3 years, and during this time the
A call option is written on a stock whose current price is $50. The option has maturity of 3 years, and during this time the annual stock price is expected to increase by 25% or to decrease by - 10%. The annual interest rate is constant at 6%. The option is exercisable at date 1 at a price of $55, at date 2 for a price of $60, and at date 3 for a price of $65. What is its value today? Will you ever exercise the option early?
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