answer is 1373.59

(5) A European call option has strike price $20,000 and exercise in three years. The current price of the underlier is $18,400 and this will either go up by 10% or down by 8% each year, independent of what happens in the other years. Find the no-arbitrage price of the option, by using risk-neutral probabilities, if the annual effective risk-free interest rate is 4%. [If you did Problem (8.9.3), compare your answer to the one found using replicating portfolios.] (5) A European call option has strike price $20,000 and exercise in three years. The current price of the underlier is $18,400 and this will either go up by 10% or down by 8% each year, independent of what happens in the other years. Find the no-arbitrage price of the option, by using risk-neutral probabilities, if the annual effective risk-free interest rate is 4%. [If you did Problem (8.9.3), compare your answer to the one found using replicating portfolios.]