Assume we have a stock currently worth $50. We also assume the interest rate is zero, and
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Assume we have a stock currently worth $50. We also assume the interest rate is zero, and we can buy options for this stock with a strike price of $50. If the stock can rise or fall by $10 with equal probability over the option period, and the option cannot be exercised until the expiration date, what is the time value of the option?
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To solve this problem we need to calculate the expected payoff of the option and then subtract the i... View the full answer
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