Assume that one year from now, ABC company stock will have a price of $48 (30% chance), $46 (40% chance) or $24 (30% chance). The current price of ABC company stock is $40. Consider an option with an exercise price of $38.

Compute the intrinsic value of the option (i.e., the value of the option if it had to be exercised currently). Show your computations?

Compute the market value of the option if it allows the share to be purchased one year from now (note that in this simple example, you dont need the Black-Scholes formula).