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Question 37. A currency is currently worth $0.80 and has a volatility of 12%. The domestic and foreign risk-free interest rates are 6% and
Question 37. A currency is currently worth $0.80 and has a volatility of 12%. The domestic and foreign risk-free interest rates are 6% and 8%, respectively. Use a two-step binomial tree to value (a) a European four-month call option with a strike price of $0.79 (4 points) (b) an American four-month call option with the same strike price (5 points)
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Valuation Measuring and managing the values of companies
Authors: Mckinsey, Tim Koller, Marc Goedhart, David Wessel
5th edition
978-0470424650, 9780470889930, 470424656, 470889934, 978-047042470
