current price stock XYZ is RM20. In 3 months, it will be either RM22 or RM18. A 3-month call option on XYZ stock has a strike price of 21. The risk-free rate is 12%. Using binomial tree, estimate the intrinsic price (premium) of the 3-month call options

current price stock XYZ is RM20. In 3 months, it will be either RM22 or RM18. A 3-month call option on XYZ stock has a strike price of 21. The risk-free rate is 12%. Using binomial tree, estimate the intrinsic price (premium) of the 3-month call options

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 4P: Put–Call Parity The current price of a stock is $33, and the annual risk-free rate is 6%. A call...

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Question

The current price stock XYZ is RM20. In 3 months, it will be either RM22 or RM18. A 3-month call option on XYZ stock has a strike price of 21. The risk-free rate is 12%.
Using binomial tree, estimate the intrinsic price (premium) of the 3-month call options.

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