You work on a proprietary trading desk of a large investment bank, and you have been asked for a quote on the sale of a call option with a strike price of $49 and one year of expiration. The call option would be written on a stock that does not pay a dividend. From your analysis, you expect that the stock will either increase to $71 or decrease to $33 over the next year. The current price of the underlying stock is $49, and the risk-free interest rate is 4% per annum. What is this fair market value for the call option under these conditions? Do not round intermediate calculations. Round your answer to the nearest cent.

Answer rating: 100% (QA)

To find the fair market value of the call option under the given conditions we can use the binomial ... View the full answer