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The current price of a stock is $48. In 1 year, the price will be either $55 or $31. The annual risk-free rate is 6.6%.

The current price of a stock is $48. In 1 year, the price will be either $55 or $31. The annual risk-free rate is 6.6%. Find the price of a call option on the stock that has a strike price of $50 and that expires in 1 year. ( Use daily compounding.)

Inputs P0 = ? u = ? X = ? d = ? Cu = ? Pu = ? Cd = ? Pd = ?

Use the Binomial Model 4-step approach
Step 1 Ns =
Step 2 Payoff =
Step 3 PV(payoff) =
Step 4 Price for N shares =
Vc =

Use the Binomial Model Formula Approach (single-period, thus n=1)
ert/n =
u =
d =
Vc =

Use the same Binomial Formula to price an option with the same chararistics but with strike price of $45.
Cu =
Cd =
Vc =

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