A stock with a current price of $400, can go either up by 25%, or down by
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A stock with a current price of $400, can go either up by 25%, or down by 20%. You have the opportunity to buy a European call option on this stock for $100, which matures at the end of two periods, with an exercise price of 375. The risk-free rate is 10%.
a- Please draw the trees of the stock and option values
b- What is the price of the call option today
c- What is your decision for this investment opportunity? Explain your answer
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