Question #1

Use Two-State Binomial Option (European) Pricing Model. Suppose you bought a stock today for $27.00. Stock price can either go up by a factor of 1.41 or down by a factor of 0.71 with equal probability in 0.50 years (or 180 days). Suppose the annual risk-free rate is 6.00% and the option exercize price is 24.00.

How much should be the Call Option Value that expires in 0.50 years (or 180 days)? Enter your answer in the following format: 1.23 Hint: Answer is between 5.74 and 6.93

Question #2

Use Two-State Binomial Option (European) Pricing Model. Suppose you bought a stock today for $20.00. The stock price can either go up to $24.00 or down to $17.00 with equal probability in 0.25 years (or 90 days). Suppose the annual risk-free rate is 4.00% and the option exercize price is 21.00.

How much should be the Call option Value that expires in 0.25 years (or 90 days)? Enter your answer in the following format: 1.23 Hint: Answer is between 1.19 and 1.49