Fischer Inc. currently has a stock price of $80 and a certain $5 per share dividend will be paid one period from today. The uncertain portion of the stock’s value evolves following a binomial process with u=1.25 and d=0.85. The periodic risk-free rate is 4%. What is the no-arbitrage value per share of an American-style call option on Fischer Inc. with a strike price of $77.50 and two periods until expiration?

Answer rating: 100% (QA)

SOLUTION To solve this problem we can use the twoperiod binomial option pricing model The steps are as follows Calculate the possible stock prices at the end of two periods using the up and down facto... View the full answer