An at the money European call option has 3 months until expiration and a strike of $60. You believe that the stock has an equal likelihood of going up to $70 or down to $50 in that time and that no other value is possible. Given that the risk-free rate is 4% EAR, what is the Binomial model estimated price of this option? [Hint: This may be quicker to solve with risk-neutral probabilities] $0 $4.95 $5.00 $5.24 $9.90

An at the money European call option has 3 months until expiration and a strike of $60. You believe that the stock has an equal likelihood of going up to $70 or down to $50 in that time and that no other value is possible. Given that the risk-free rate is 4% EAR, what is the Binomial model estimated price of this option? [Hint: This may be quicker to solve with risk-neutral probabilities] $0 $4.95 $5.00 $5.24 $9.90

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 5P

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