Chapter 03 · Section 3.1

Binomial Pricing Question 7

XYZ costs 185.90. Knowing that the probabilities for a rise or fall are 50 % and that the risk free interest rate is 10%, what is the value of the call with an exercise price of 100 at the end of the second period?

• a) +94.99
  Yes. The result is obtained in the following manner: (1/1.1) x {(141.67 x 0.5) + (67.31 x 0.5)} = 94.99. Continue
  b) -95.00/99999
  c) -0.01/94.98
  d) -104.49
  e) -0
  f) --999999/-1

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