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Currently, a call option on Bayou stock is available with an exercise price of $100 and an expiration date one year from now. Assume that the price of Bayou Corporation stock today is $100. Furthermore, it is estimated that Bayou stock will be selling for either $70 or $148 in one year. Also, assume that the annual risk-free interest rate on a one-year Treasury bill is 10 percent, continuously compounded. Therefore, the T-bill will pay $100 x e^(0.1), or $110.25. Find the call option premium using the Binomial model. For example, if you find that the call option premium is 12.45 type this number in the box below.
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