For the following two questions, consider the following stock and its price evolution for the next two periods. Current stock price is $200. In each of the two periods, the stock price can either go up or go down by 10% with equal probability. Below diagram shows the potential stock prices in the next two periods:

30. 31) Use a two-period binomial option pricing model to derive the price of a European call option that expires in two periods and has a strike price of $220. Assume that risk-free rate is 10% per period. What is the price of the option today (C0)? a) 6.06

    b) 12.12

    c) 18.18

    d) 20

Period 1 Period 2 - 242 x 220