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The current price of a non-dividend paying stock is $40. Use a two-step tree to value...

The current price of a non-dividend paying stock is $40. Use a two-step tree to value a European call option on the stock with a strike price of 42 that expires in 1 year. Each step is 6 months, the risk-free rate is 7% per annum with continuous compounding. What is the European call option price when u = 1.1 and d = 0.9 ?

$3.74

$2.74

$4.74

$1.75

$5.75

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Expert Solution

2.74 = answer

jeff jeffy answered 4 months ago
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