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Prices of call options of the company

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Reference no: EM133120357

1. For demonstration purposes you decided to use the binomial option pricing to find the price of a call option of the company's stock. The current price of the stock is $40. In 1 year, you expect the price of the stock to be either $60 or $30. The annual risk-free rate is 5%. Calculate the price of the call option if the exercise price of the stock is $42 and expires in 1 year. (Use daily compounding).

2. The CEO of the company asked you to address the factors that can affect the prices of call options of the company. List five factors that can affect call option prices.

3. Describe four ways that option pricing can be used to help Triple A in its corporate financial management.

Reference no: EM133120357

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