The following two-step binomial tree depicts the quarterly price path of an underlying share for an American
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Question:
The following two-step binomial tree depicts thequarterlyprice path of an underlying share for anAmerican call option. Each step represents a quarter of a year. The strike price of this option is $40 and the risk free rate is 8% pa.
Binomial Share Prices
a)$48.00
b)$50.40
c)$45.60
d)$52.92
e)$47.88
f)$43.32
a)Calculate the payoff of the option at point (b). Give your answer in dollars and cents to the nearest cent.
Payoff at point (b) =$
b)Calculate the value of the option at point (b). Give your answer in dollars and cents to the nearest cent.
Value of the option at point (b) =$
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