Homework answers / question archive / 1) For the two-period (each period is 6 months) binomial option pricing model, So=75, and the standard deviation is 5

1) For the two-period (each period is 6 months) binomial option pricing model, So=75, and the standard deviation is 5

Finance

Share With

1) For the two-period (each period is 6 months) binomial option pricing model, So=75, and the standard deviation is 5.56%. The risk-free interest rate is 3%. Calculate the probability (p) and the stock price moving up in one-time step?

a. .7777

b. .6666

c. .8750

d. .5555

2. For the previous problem, what is the value of a call option with strike price $75, and time-to-maturity = 1/2 year

a. $1.89

b. $2.55

c. None of the above

d. $2.83