The current price of XL Corporation stock is $40. In each of the next two years, this stock price can either go up by $15.00 or go down by $15.00. XL stock pays no dividends. The one-year risk-free interest rate is 15% and will remain constant. Using the binomial pricing model, calculate the price of a two-year American straddle option on XL stock with a strike price of $40.
The current price of XL Corporation stock is $40. In each of the next two years, this stock price can either go up by $15.00 or go down by $15.00. XL stock pays no dividends. The one-year risk-free interest rate is 15% and will remain constant.
Using the binomial pricing model, calculate the price of a two-year American straddle option on XL stock with a strike price of $40.
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