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A stock price is currently $80. It is known that at the end of four months it will be either $75 or $85. The risk-free
A stock price is currently $80. It is known that at the end of four months it will be either $75 or $85. The risk-free interest rate is 5% per annum with continuous compounding. What is the value of a four-month European call option with a strike price of $80? Use no-arbitrage arguments. Find the price of the associated put option using put-call parity.
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