21.5. Future prices of a stock are modeled by a 3-period binomial tree, with each period being 4 months. (1) The tree is constructed based on forward prices. (ii) The stock price is 50. (iii) The continuously compounded risk-free interest rate is 0.03. (iv) The stock pays dividends proportional to its price at a continuous rate of 0.06. (v) o = 0.3. A European call option on the stock expiring in one year has strike price 60. Determine the price of the call option.

21.5. Future prices of a stock are modeled by a 3-period binomial tree, with each period being 4 months. (1) The tree is constructed based on forward prices. (ii) The stock price is 50. (iii) The continuously compounded risk-free interest rate is 0.03. (iv) The stock pays dividends proportional to its price at a continuous rate of 0.06. (v) o = 0.3. A European call option on the stock expiring in one year has strike price 60. Determine the price of the call option.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 11P

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