Question

YouClone Company’s stock is currently priced at $100. Every period it will go
up by $1 with probability 40%, stay the same with probability 25%, and down by $1 with
probability 35%. Consider an option to buy stock in the next 10 days at a cost of $102.
Create a spreadsheet in Excel to calculate the value of such an option.

Answer 1

Day Start	Day 1			Day 2			Day 3			Day 4			Day 5
Current price : $100	Expected	Probability	Expected	Expected	Probability	Expected	Expected	Probability	Expected	Expected	Probability	Expected	Expected	Probability	Expected
Every period it will go up by $1 with probability 40%	101	40%	40.40	101.05	40%	40.42	101.10	40%	40.44	101.15	40%	40.46	101.20	40%	40.48
stay the same with probability 25%	100	25%	25.00	100.05	25%	25.01	100.10	25%	25.03	100.15	25%	25.04	100.20	25%	25.05
down by $1 with probability 35%	99	35%	34.65	99.05	35%	34.67	99.10	35%	34.69	99.15	35%	34.70	99.20	35%	34.72
	Expected value		100.05	Expected value		100.10	Expected value		100.15	Expected value		100.20	Expected value		100.25
Day Start	Day 6			Day 7			Day 8			Day 9			Day 10
Current price End of day 5: $100.25	Expected	Probability	Expected	Expected	Probability	Expected	Expected	Probability	Expected	Expected	Probability	Expected	Expected	Probability	Expected
Every period it will go up by $1 with probability 40%	101.25	40%	40.50	101.30	40%	40.52	101.35	40%	40.54	101.40	40%	40.56	101.45	40%	40.58
stay the same with probability 25%	100.25	25%	25.06	100.30	25%	25.08	100.35	25%	25.09	100.40	25%	25.10	100.45	25%	25.11
down by $1 with probability 35%	99.25	35%	34.74	99.30	35%	34.76	99.35	35%	34.77	99.40	35%	34.79	99.45	35%	34.81
	Expected value		100.30	Expected value		100.35	Expected value		100.40	Expected value		100.45	Expected value		100.50

Based on given probability option and values the value of stock option next 10 days is = $100.5