You observe a 50 price for a non-dividend-paying stock. The call option has two years to mature, the periodically compounded risk-free interest rate is 5%, the exercise price is 50, u = 1.356, and d = 0.744. Assume the call option is European-style. Required:

a) Compute the probability of an up move based on the risk-neutral probability

b) Compute the current call option value

c) Determine the current put option value

d) Explain four advantages of the option valuation method you have used

You observe a 50 price for a non-dividend-paying stock. The call option has two years to mature, the periodically compounded risk-free interest rate is 5%, the exercise price is 50, u = 1.356, and d = 0.744. Assume the call option is European-style. Required:

a) Compute the probability of an up move based on the risk-neutral probability

b) Compute the current call option value

c) Determine the current put option value

d) Explain four advantages of the option valuation method you have used