Question: Problem 2: (10 points) One Stage Options A stock price is currently $50. It is known that at the end of six months it will

Problem 2: (10 points) One Stage Options

A stock price is currently $50. It is known that at the end of six months it will be either $60 or $42. The risk-free rate of interest with continuous compounding is 10% per annum. Calculate the value of a six-month European call option on the stock with an exercise/strike price of $48.

Draw the tree diagram will all the data, show all the answers on the tree.
Calculate option value using Portfolio / Long Form
Calculate option value using formula method
Is the value in b and c same?

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