Stocks of the Binomial Inc. are currently $50 per share and it is known that its stock price will either increase by 15% per year or decrease by 25% per year, independently for the next two years. The prevailing risk-free rate is 3%. Value an American call option on the stock with two years of life and an exercise price of $53.

Answer rating: 100% (QA)

Heres how to value an American call option on Binomial Inc stock using a twoyear binomial tree Step 1 Set up the binomial tree Current stock price S0 ... View the full answer