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Calculate the call option value using the two- state stock

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Question - You are attempting to value a call option with an exercise price of $95 and one year to expiration. The underlying stock pays no dividends, its current price is $95, and you believe it has a 50% chance of increasing to $120 and a 50% chance of decreasing to $70. The risk-free rate of interest is 8%. Consider one share of stock and two written calls. Calculate the call option's value using the two- state stock price model.

Reference no: EM133168464

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