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Calculate the value the call option

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Reference no: EM133033834

Consider a European call option on a non-dividend-paying stock where the stock price is $40, the strike price is $40, the risk-free rate is 2.5% per annum, the volatility is 34% per annum, and the time to maturity is six months.

a. Calculate u, d, and p for a two-step binomial tree.

b. Calculate the value the call option using a two-step binomial tree.

Reference no: EM133033834

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