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How do determine what is the option value

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Reference no: EM132702091

Problem 1: The current price of a stock is $22 and at the end of one year, it's price will either be $27 or $17. The annual risk-free rate is 8%, based on daily compounding. A 1-year call option on the stock, with an exercise price of $22 is available. Based on the binominal model, what is the option's value?

Reference no: EM132702091

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