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5-2: The Single-Period Binomial Option Pricing Approach Problem
5-7 Binomial Model
The current price of a stock is $14. In 6 months, the price will be either $19 or $11. The annual risk-free rate is 7%. Find the price of a call option on the stock that has a strike price of $12 and that expires in 6 months. (Hint: Use daily compounding.) Round your answer to the nearest cent. Assume a 365-day year. Do not round your intermediate calculations.
Also, please explain the answer.
Aug 14 2020 View more View Less
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