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Calculate the value of a call option one year from now given the following information: The stock is currently priced at $50. Dave and Mary
Calculate the value of a call option one year from now given the following information: The stock is currently priced at $50. Dave and Mary both believe the stock will go up 20% one year or it will go down 20% one year from now ($60 or $40). Dave believes the probability of the stock going up to $60 one year from now is 70%, while Mary believes the probability it will go up to $60 in a year is only 30%. If the risk free rate of return is 3.5%, what is the value of this call option one year from now? (show work)
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