Question: Time to maturity = 1 year Call option c) You are given the following information with respect to binomial option pricing model: The exercise price

Time to maturity = 1 year Call option c) You are

Time to maturity = 1 year

Call option

c) You are given the following information with respect to binomial option pricing model: The exercise price of the option is $50 The current asset price is $60 The size of the up move is 25% The risk-free rate is 6.5% It is a two-stage option pricing model. Calculate the price of the option given the information above (14 marks) Hint: - Calculate d using d=1/u Calculate the value of the probability of the up-move as: P(u) = (1+rf-d)/(u-d) Calculate the value of the probability of the down move as P(d) = 1-P(u)

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