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ABC stock is selling for $30 today and the stock price is expected to move up to $40.00 (probability-65%) or down to $22.50 (probability-35%) in
ABC stock is selling for $30 today and the stock price is expected to move up to $40.00 (probability-65%) or down to $22.50 (probability-35%) in a year. A one-year call option has an exercise price of $30. If the current value of the call option is $5.96, what is the implied risk-free rate? Hint: no need to calculate ?u and ?d, just use the given probabilities. Use discreet compounding. 1) 6.65% 02) 7.86% 3) 8.46% 4) 9.06% & 5) 10.23%
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