Consider a single period binomial model with two periods where the stock has an initial price of $100 and can go up 15 or down 5 in each period The price of the European call option on this stock with strike price $115 and maturity in two periods is $5 424 What should be the price of the risk free security that pays $1 after one period regardless of what happens We assume, as usual, that the interest rate r per period is constant

Question: Consider a single-period binomial model with two periods where the stock has an initial price of $100 and can go up 15% or down 5%

Consider a single-period binomial model with two periods where the stock has an initial price of $100 and can go up 15% or down 5% in each period. The price of the European call option on this stock with $115 and in two periods is $5.424. What should be the price of the risk-free security that pays $1 after one period regardless of what happens? We assume, as usual, that the interest rate r per period is constant.

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