Question
Using the information below, calculate the risk-neutral probabilities. Then use them to price the one-year call option. The current price of Estelle Corporation stock is
Using the information below, calculate the risk-neutral probabilities. Then use them to price the one-year call option. The current price of Estelle Corporation stock is $ 24.00 $24.00. In each of the next two years, this stock price will either go up by 21 % 21% or go down by 21 % 21%. The stock pays no dividends. The one-year risk-free interest rate is 7.7 % 7.7% and will remain constant. The strike price is $ 24.00 $24.00. (Note: Make sure to round all intermediate calculations to at least five decimal places.) (Select from the drop-down menus.) The probability that the price will rise is 68% while the probability that the price will drop is 32% . The price of the one-year call option is $ 3.20 3.20. (Round to the nearest cent.)
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