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Problem #2 All reliable analysts agree that a share of ABC Corp., selling today for $50, will be priced at either $65 or $45 one

Problem #2

All reliable analysts agree that a share of ABC Corp., selling today for $50, will be priced at either $65 or $45 one year from now. They further agree that the probabilities of these events are 0.6 and 0.4, respectively. The market risk-free rate is 6%. What is the value of a call option on ABC whose exercise price is $50 and which matures in one year?

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