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What is the current value of a six-month call option

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Reference no: EM133057966

Suppose Carol's stock price is currently $20. If the standard deviation of the continuously compounded returns (σ) on a stock is 60 percent per year. The annual risk-free rate is 12%, compounded every 6 months.

A. Using a one-step binomial tree, what is the current value of a six-month call option with an exercise price of $25?

B. Using a two-step binomial tree, what is the current value of a one-year put option with an exercise price of $25?

Reference no: EM133057966

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