Question: Using the formula mentioned previously in the Hedged Portfolio Method section, under Formal Derivation of European Call Option Value , calculate the call option price

Using the formula mentioned previously in theHedged Portfolio Methodsection, underFormal Derivation of European Call Option Value, calculate the call option price and confirm that the call price is $7.38. [Note:S = 40, X = 38, u = 1.2, d = 0.67, r = 0.1, C_u= max(0, uS - X), and C_d= max(0, dS - X) ]

This exercise provides you with an opportunity to calculate the option price by applying the Binomial Option Pricing Model (BOPM) - Hedged Portfolio Method

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