Calculate value of a four-month european call option

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Reference no: EM131551528

A stock price is currently $40. It is knows that at the end of six month, it will be either $50 or $30. The risk-free rate of interest with continuous compounding is 8% per annum. Calculate the value of a four-month European call option on the stock with an exercise price of $42, using binomial model and (a) no-arbitrage argument, and (b) risk-neutral valuation approach.

Reference no: EM131551528

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