Using EXCEL ( Show Formula)

1. Fill in cells in the spread sheet to find the call option premium.
2. Double check you answer using the put-call parity.

European Call Step 3: Stock Price Tree Now Period 0 Time 0.000 1 0.375 2 0.750 3 1.125 4 1.500 5 1.875 6 2.250 7 2.625 Maturity 8 3.000 Inputs Stock Price Now Annual Standard Deviation Exercise Price Riskfree Rate (Annual) Time To Maturity (Years) Number of Periods $50.00 15.00% $55.00 3.00% 3.00 8 Stock Step 1: Get u and d Yrs/Period(At) u d Step 4: Option Tree Discount Facto i.e., exp(-rt) Call Premium Step 2: Find p and a p Rf/Period(rt) p 9 European Call Step 3: Stock Price Tree Now Period 0 Time 0.000 1 0.375 2 0.750 3 1.125 4 1.500 5 1.875 6 2.250 7 2.625 Maturity 8 3.000 Inputs Stock Price Now Annual Standard Deviation Exercise Price Riskfree Rate (Annual) Time To Maturity (Years) Number of Periods $50.00 15.00% $55.00 3.00% 3.00 8 Stock Step 1: Get u and d Yrs/Period(At) u d Step 4: Option Tree Discount Facto i.e., exp(-rt) Call Premium Step 2: Find p and a p Rf/Period(rt) p 9