In: Finance
A stock is currently priced at $49.00. The risk free rate is 5.9% per annum with continuous compounding. In 8 months, its price will be $57.33 with probability 0.46 or $42.63 with probability 0.54.
Using the binomial tree model, compute the present value of your expected profit if you buy a 8 month European call with strike price $53.00. Recall that profit can be negative.