Calculate the call price today

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Reference no: EM132951417

1. Consider a one-year European stock call option. The current stock price is Sh. 100 and the exercise price is Sh. 102. The risk-free rate is 5% and the size of the up move is 1.2 per year.

Required. (Using binomial model)

a) Calculate the call price today.

b) Suppose the available call price is Sh. 8, determine the arbitrage strategy assume you trade 1,000 options.

Reference no: EM132951417

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