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Answering this question requires that you use the spreadsheet call.xls (which has been available on moodle for weeks). You should open that spreadsheet now. You

Answering this question requires that you use the spreadsheet call.xls (which has been available on moodle for weeks). You should open that spreadsheet now.

You will estimate the value of a European call option using a Binomial tree. The following are the key inputs:

current share price (S0) is $25

the call option has a strike price of $30

the riskfree rate of interest is 6% per annum

the option has 18 months to expiry

the volatility (sigma) of the underlying stock is 25% per annum.

Using a 15-step Binomial tree, what is the Binomial approximation of the call option value?

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