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Assume that the current value of the underlying asset is 100. The strike price of the option is also 100. The option expires in one
Assume that the current value of the underlying asset is 100. The strike price of the option is also 100. The option expires in one year. At the end of the year, the price of the asset will either rise to 130 or fall to 80. We assume there is 60% chance it will rise to 130 and 40% chance it will fall to 80. The interest rate is 10%.
What is the option value?
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