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12.The current price of a non-dividend paying stock is $30. Use a two-step tree to value a European call option on the stock with a strike price of $32 that expires in 6 months. Each step is 3 months, the risk free rate is 8% per annum with continuous compounding. What is the option price when u = 1.1 and d = 0.9.

A.$1.29

B.$1.49

C.$1.69

D.$1.89

A.$1.29

B.$1.49

C.$1.69

D.$1.89

Answer: B

The probability of an up movement is

The tree is

The probability of an up movement is

The tree is

Flashcard info:

Author: CoboCards-User

Main topic: Finance & Investment

Topic: Derivatives

Published: 27.10.2015