What is the fair price to pay per share for the option

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Assume that each week a stock either increases or decreases $1.00 in price with probability 1/2, and that different weeks are independent.

The current price of the stock is $100.00. I agree to buy a "call option" that lets me buy the stock for $105.00 after 10 weeks if the price is above $105.00 (if I wish). If the price is below $105.00, the option is not exercised.

Assuming no transaction fees and an interest rate of 0%, what is the "fair" price to pay per share for the option?

Reference no: EM13670867

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