Consider a stock whose price today is $50. Suppose that over the next year, the stock...

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Consider a stock whose price today is $50. Suppose that over the next year, the stock price can either go up by 6%, or down by 3%, so the stock price at the end of the year is either $53 or $48.50. The interest rate is 4%. There also exists a call option on the stock with an exercise price of $50. I) Find the price of the call option using risk-neutral probabilities. Consider a stock whose price today is $50. Suppose that over the next year, the stock price can either go up by 6%, or down by 3%, so the stock price at the end of the year is either $53 or $48.50. The interest rate is 4%. There also exists a call option on the stock with an exercise price of $50. I) Find the price of the call option using risk-neutral probabilities.

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To find the price of the call option using riskneutral probabilities we first need to calculate the ... View the full answer