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The price of Romaan Corp. stock will be either $75 or $95 at the end of the year. Call options are available with one year to expiration. T-bills currentlyyield 6 percent. The current value of Romaan stock is $80.
a) What is the value of the call option using the T wo-State Option Pricing Model if the exercise price is $90?
b) What is price of Romaan's Put option having the same maturity and exercise price as the Call option?
c) If the standard deviation of the stock is 17.185%, what is the value of Romaan's Call option using the Black Scholes Option Pricing model?
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POINT: No. Banks are in the business of providing credit. When economic conditions deteriorate, there will be loan defaults and some banks will not be able to survive.
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