Question: 5) Use the Binomial Option Pricing Model to calculate the price of an option with the following variables: Type = European call Option period =

5) Use the Binomial Option Pricing Model to calculate the price of an option with the following variables: Type = European call Option period = 140 days; ACT/360 Risk-free annual rate = 2% EUR/USD SO = 1.25 EUR/USD FT = 1.27 E = 1.26 Volatility = 5%

A. Calculate u, d, the Probability of u and the Probability of d. B.Calculate CUT and CDT C. Lastly, calculate C0

Where, SO = Current spot rate FT = Future spot rate = Volatility% u = % increase of USD/ EUR in one step d = % decrease of USD/ EUR in one step CUT = Increasing call option price at time T. CDT = Decreasing call option price at time T. C0 = Current call option price.

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