Question
Currently, a call option on Bayou stock is available with an excercise price of $100 and an expiration date one year from now. Assume that
Currently, a call option on Bayou stock is available with an excercise price of $100 and an expiration date one year from now. Assume that the price of Bayou corporation stock today is $100. Furthermore, it is estimated that bayou stock will be selling for either $68 or $157 in one year. Also, assume the annual risk free interest rate on a one year treasury bill is 10 percent, continuously compounded. therefore, the T-bill will pay $100 x e^(0.1) or $110.25
find the call option premium using the binomial model. for example, if you find that the call option premium is 12.45 type 12.45
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