The Single-Period Binomial Option Pricing Approach

Binomial Model

The current price of a stock is $18. In 1 year, the price will be either $26 or $14. The annual risk-free rate is 3%. Find the price of a call option on the stock that has a strike price is of $25 and that expires in 1 year. (Hint: Use daily compounding.) Round your answer to the nearest cent. Assume 365-day year. Do not round your intermediate calculations.

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