Replicate problem 8-6 with these new inputs. The current price of a stock is $48. In 1 year, the price will be either $55 or $31. The annual risk-free rate is 6.6%. Find the price of a call option on the stock that has a strike price of $50 and that expires in 1 year (use daily compounding). Inputs Po = 21 X = d = Pu = P t = IRF Use the Binomial Model 4-step approach Step 1 N = Step 2 Payoff = Step 3 PV(payoff = Step 4 Price for N shares = V Use the Binomial Model Formula Approach (single-period, thus n=1) = t = = IRF = = n = V Use the same Binomial Formula to price an option with the same chararistics but with strike price of $45. X 45 Cu = = V = 33 |||||| = = ||||| = = 1 **(single-period option) Replicate problem 8-6 with these new inputs. The current price of a stock is $48. In 1 year, the price will be either $55 or $31. The annual risk-free rate is 6.6%. Find the price of a call option on the stock that has a strike price of $50 and that expires in 1 year (use daily compounding). Inputs Po = 21 X = d = Pu = P t = IRF Use the Binomial Model 4-step approach Step 1 N = Step 2 Payoff = Step 3 PV(payoff = Step 4 Price for N shares = V Use the Binomial Model Formula Approach (single-period, thus n=1) = t = = IRF = = n = V Use the same Binomial Formula to price an option with the same chararistics but with strike price of $45. X 45 Cu = = V = 33 |||||| = = ||||| = = 1 **(single-period option)