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The price of a stock is currently $37. Over the course of the next year, the price is anticipated to rise to $40 or decline

The price of a stock is currently $37. Over the course of the next year, the price is anticipated to rise to $40 or decline to $36. If the upside has a 65% probability of occurring and the risk free interest rate is 3%, what is the price of a one year call option with an exercise price of $35 using the binomial model?

A) $1.26

B) $2.70

C) $1.43

D) $1.50

The answer is A, but why?

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