You are attempting to value a call option with an exercise price of $105 and one year to expiration. The underlying stock pays no dividends, its current price is $105, and you believe it has a 50% chance of increasing to $127 and a 50% chance of decreasing to $83. The risk-free rate of interest is 10%. Calculate the call option’s value using the two-state stock price model. Note: Do not round intermediate calculations. Round your final answer to 2 decimal places.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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You are attempting to value a call option with an exercise price of $105 and one year to expiration. The underlying stock pays no dividends, its current price is $105, and you believe it has a 50% chance of increasing to $127 and a 50% chance of decreasing to $83. The risk-free rate of interest is 10%. Calculate the call option’s value using the two-state stock price model.

Note: Do not round intermediate calculations. Round your final answer to 2 decimal places.

 

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