Calculate call options value using state stock price model, Financial Management

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Calculate call options value using state stock price model

Problem

You are attempting to value a call option with an exercise price of $107 and one year to expiration. The underlying stock pays no dividends, its current price is $107, and you believe it has a 50% chance ofincreasing to $136 and a 50% chance of decreasing to $78. The risk-free rate of interest is 9%. Calculate the call option's value using the two-state stock price model.

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Financial Management: Calculate call options value using state stock price model

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Financial Management: Calculate call options value using state stock price model

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