What is the price of derivative security

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Reference no: EM132023886

A security has a current value of $30.00 and is expected to increase in price to $33.30 or decrease in price to $27.00 in one year. Assuming an annual risk-free rate of 5%, what is the price of a derivative security that pays $1.00 if the $33.30 security price should occur and zero otherwise? Further, what is the price of a derivative security that pays $1.00 if the $27.00 security price should occur and zero otherwise?

Reference no: EM132023886

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