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Assume there is a Call with one year to expiration on a stock that is a take over candidate. Assume the stock pays no dividends
Assume there is a Call with one year to expiration on a stock that is a take over candidate. Assume the stock pays no dividends and is currently trading at $280 a share. In one year (at expiration of the call) you either expect the stock to trade at $400 if it is taken over, or at $200 if not. If the strike on the option is $300 and the one year risk free rate is 4%. Based on a one period binomial model, what should the value of the call be today?
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