You are attempting to value a call option with an exercise price of $104 and one...

You are attempting to value a call option with an exercise price of $104 and one year to expiration. The underlying stock pays no dividends, its current price is $104, and you believe it has a 50% chance of increasing to $118 and a 50% chance of decreasing to $90. The risk-free rate of interest is 11%. Calculate the call option’s value using the two-state stock price model. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

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Expert Solution

The call option gives the option buyer the right to buy the Stock at a strike price.

The payoff of call option = Max(S-X,0) where S is stock price and X is exercise price.

jeff jeffy answered 11 months ago

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