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A non-dividend-paying stock currently sells for $100 per share. The risk-free rate is 8% per annum...

A non-dividend-paying stock currently sells for $100 per share. The risk-free rate is 8% per annum and the volatility is 13.48% per annum. Consider a European call option on the stock with a strike price of $100 and the time to maturity is one year. a. Calculate u, d, and p for a two-step tree. b. Value the option using a two-step tree. Verify your results with the Option Calculator Spreadsheet.

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Expert Solution

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

jeff jeffy answered 3 days ago
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