Compare your findings with black and scholes price of option, Finance Basics

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Compare your findings with black and scholes price of option

Problem

The current price of a stock is $1000 and has a volatility of 40%. The risk-free rate is 5%. Value a European one-year call option with a strike price of 800 using a two-step tree. Compare your findings with the Black and Scholes price of this option.

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Finance Basics: Compare your findings with black and scholes price of option

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Finance Basics: Compare your findings with black and scholes price of option

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