Question
Option pricing is an important subject in the field of financial investment. Suppose the current price of a stock is $100 per share. Research shows
Option pricing is an important subject in the field of financial investment. Suppose the current price of a stock is $100 per share. Research shows that the spot price will move either up by 8% or down by 4% each period. Use the Binomial Option Pricing model to determine the price of a call option with a strike price of $110 and an expiration date of THREE periods. The risk-free rate is 3% and no dividend will be paid within the three periods.
Build the call premium tree. Answers need to keep at least four decimal points, e.g., 2.5876.
| C0 = | C1u = | C2uu = | C3uuu = |
| C3uud = | |||
| C2ud = | |||
| C1d = | C3udd = | ||
| C2dd = | |||
| C3ddd = |
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Accounting Principles
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
9th Edition
978-0470317549, 9780470387085, 047031754X, 470387084, 978-0470533475
