eBay stock is currently at $54. It is expected to rise 9% or fall 7% in each of two 3-month periods. Suppose it rises 9% during both periods. The risk-free interest rate is 0.5% per 3 month period. What is the payoff value of a call option contract with an exercise price of $54 at the end of the 6-month period?

According to Connect, the answer is $4.16 but I don't understand why.

Answer rating: 100% (QA)

To calculate the payoff value of a call option contract at the end of the 6month period we need to u... View the full answer