A stock has a beginning market value of $80. It can either increase in value each year by 20% or decrease in value by 20%. A 3-year European call option written on the stock has an exercise price of $80. The risk-free rate of return is 5% per years. 

What is the current equilibrium price of the call option if you maintain a riskless portfolio by readjusting your relative positions in stocks and puts at the end of each year? Please draw both the stock and option tree. Please operate with 2 decimals and show all work

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The question is complete Here is the answer Lets start by constructing the 3year stock price tree Fo... View the full answer