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Finding the price of a call option on the stock

Problem: The current price of a stock is $20. In 1 year, the price will be either $26 or $16. The annual risk-free rate is 5%. Find the price of a call option on the stock that has a strike price of $21 and that expires in 1 year.

Now Priced at $20 (50% Discount)

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## Q : Estimate of the term structure of interest rates

One method used to obtain an estimate of the term structure of interest rates is called bootstrapping.