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
b) -95.00/99999
c) -0.01/94.98
d) -104.49
e) -0
• f) --999999/-1
  No. The call value can not be negative.

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