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What is the option value based on the binominal model

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Reference no: EM132707138

Problem 1: The current price of a stock is $20, and at the end of one year its price will be either $23.50 or $15. The annual risk-free rate is 4.0% (use daily compounding with 365 days/year), based on daily compounding. A 1-year call option on the stock, with an exercise price of $17.5, is available. Based on the binominal model, what is the option's value?

Reference no: EM132707138

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