What is the value of a derivative that pays off

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A stock price is currently $25. It is known that at the end of 2 months it will be either $23 or $27.

The risk-free interest rate is 10% per annum with continuous compounding. Suppose S_T is the stock price at the end of 2 months. What is the value of a derivative that pays off at this time?

Reference no: EM131237480

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