Estimating two possible stock prices at the end of period

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Reference no: EM13827013

Problem:

Consider a stock worth $25 that can go up or down by 15% per period. The risk-free rate is 10%. Use one binomial period to.

a. Determine the two possible stock prices at the end of the period.

b. Determine the fair value at expiration of a European call option with an exercise price of $25.

c. Construct a hedge portfolio. Assuming that the call sells for the value you obtained in part c.

Summary of question:

This question basically belongs to Finance as well as it discusses about using one binomial period for estimating two possible stock prices at the end of the period, the fair value at expiration of call option and to construct a hedge portfolio, assuming the call sells for the value.

Reference no: EM13827013

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