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?