Question: Q6. You are given a stock S with an initial price of S 0 =$50. Calculate the expected value of a call option C 3

Q6. You are given a stock S with an initial price of S₀=$50. Calculate the expected value of a call option C₃ written on this stock in time if the call option has a strike price X=$55 and in each period, there is a 50% chance that the stock will rise by 10% and a 50% chance that the stock will fall by 5%.

Hint: Draw a 3-period binomial tree. Find the possible stock prices and the corresponding payoffs for the call option in . The value of the call option in will be the probability-weighted sum of all payoffs of the call option in

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