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The current price of Kinston Corporation stock is $ 1 0 . In each of the next two years, this stock price can either go

The current price of Kinston Corporation stock is $10. In each of the next two years, this stock price can either go up by $3 or go down by $2. Kinston stock pays no dividends. The one year risk-free interest rate is 5% and will remain constant. Using the binomial pricing model, claculate the value of a two-year at-the-money call option on Kinston stock.
a. What is the value of call option at year 1 if the stock price goes up? Mark the correct answer.
$4.23
$4.83
$4.63
$5.03
$3.48vv OK
Mark 1.0 out of 1.0
The correct answer is:
$3.48
b. What is the value of call option at year 1 if the stock price goes down? Mark the correct answer.
$1.06
$0.66
$0.86
$1.26
$0.46 OK
Mark 1.0 out of 1.0
The correct answer is:
$0.46
c. What is the value of call option at year 0? Mark the correct answer.
$2.34
$2.74
$2.94
$1.87OK
$2.14
Mark 1.0 out of 1.0
The correct answer is:
$1.87

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