Question
The current price of a stock is $20. In 1 year, the price will be either $26 or $16. The annual risk-free rate is 5%.
The current price of a stock is $20. In 1 year, the price will be either $26 or $16. The annual risk-free rate is 5%. Find the price of a call option on the stock that has a strike price of $23 and that expires in 1 year. (Hint: Use daily compounding.) Assume a 365-day year. Do not round intermediate calculations. Round your answer to the nearest cent.
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Financial management theory and practice
Authors: Eugene F. Brigham and Michael C. Ehrhardt
12th Edition
978-0030243998, 30243998, 324422695, 978-0324422696
