Question
QUESTION 18 The current price of a stock is $22, and at the end of one year its price will be either $30 or $13.
QUESTION 18
The current price of a stock is $22, and at the end of one year its price will be either $30 or $13. The annual risk-free rate is 4.0%, based on daily compounding. A 1-year call option on the stock, with an exercise price of $25, is available. Based on the binomial model, what is the option's value? (Hint: Use daily compounding.)
| a. | $1.70 | |
| b. | $2.79 | |
| c. | $3.29 | |
| d. | $2.43 | |
| e. | $3.62 |
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Personal Finance
Authors: Jeff Madura, Hardeep Singh Gill
3rd Canadian Edition
978-0133035575, 133035573, 978-0133970524, 133970523, 978-0134040042
