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A stock is currently priced at $38.00. The risk free rate is 5% per annum with continuous compounding. In 8 months, its price will be
A stock is currently priced at $38.00. The risk free rate is 5% per annum with continuous compounding. In 8 months, its price will be either $44.84 or $31.54. Using the binomial tree model, compute the price of a derivative that pays you, in 8 months, the price of the stock 8 months from now raised to the power N = 1.1. For example, if the price of the stock in 8 months was $100.00, the derivative would pay $100.001.1 = $158.49
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