A stock price is currently $40. Over the next 5-month period it is expected to go...

Transcribed Image Text:

A stock price is currently $40. Over the next 5-month period it is expected to go up by 15% or down by 4%, however, in the second 5-month period the expostation is that the stock price will increase or decrease by 10%. The risk-free interest rate is 8% per annum in the first 5-month period, while 10% per annum in the second. What is the value of a 10-month European call option with a strike price of $39? A stock price is currently $40. Over the next 5-month period it is expected to go up by 15% or down by 4%, however, in the second 5-month period the expostation is that the stock price will increase or decrease by 10%. The risk-free interest rate is 8% per annum in the first 5-month period, while 10% per annum in the second. What is the value of a 10-month European call option with a strike price of $39?

Answer rating: 100% (QA)

SOLUTION Current stock price 40 In first 5 months Upside probability 15 increase 40 115 46 Down... View the full answer