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Consider the following binomial option pricing problem involving European options. Price a call option that has six months to go before expiring. The underlying has
Consider the following binomial option pricing problem involving European options. Price a call option that has six months to go before expiring. The underlying has a price is 50 and the call option strike price is 60. The annualized risk-free rate is 5%. Every three months, the value of the stock can either increase by 20% or decrease by 20%. Use a two-step binomial tree (each step is six months)
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