European call option on non-dividend-paying stock

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Reference no: EM131537759

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 4% per annum, the volatility is 30% per annum, and the time to maturity is six months.

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

b. Value the option using a two step tree.

Reference no: EM131537759

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