A stock price is currently $30. It is known that at the end of one year, it will be either $36 and $24. The exercise price of a one- year European call option is $32. The risk- free interest rate is 5% per annum. Construct a binomial tree to show the payoff of the call option at the expiration date.

A stock price is currently $30. It is known that at the end of one year, it will be either $36 and $24. The exercise price of a one- year European call option is $32. The risk- free interest rate is 5% per annum. Construct a binomial tree to show the payoff of the call option at the expiration date.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter5: Financial Options

Section: Chapter Questions

Problem 6P: Binomial Model The current price of a stock is 20. In 1 year, the price will be either 26 or 16. The...

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