At t = 0; the price of a certain stock is S(0) = $50: At t = 1; the price is either S(1) = $80 or S(1) = $30: A certain option contract is worth $10 if the stock price is $80; and is worth $0 if the stock price is $30. Assuming no arbitrage opportunities, and continuously compounded interests of 5%; what is the price of the option at time t = 0? Please solve by hand and show all the steps of answer in order me to understand it at best :)

At t = 0; the price of a certain stock is S(0) = $50: At t = 1; the price is either S(1) = $80 or S(1) = $30: A certain option contract is worth $10 if the stock price is $80; and is worth $0 if the stock price is $30. Assuming no arbitrage opportunities, and continuously compounded interests of 5%; what is the price of the option at time t = 0? Please solve by hand and show all the steps of answer in order me to understand it at best :)

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 3MC: Consider Triple Play’s call option with a $25 strike price. The following table contains historical...

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