Unformatted text preview: (u = 1.30) or fall by 20% (d = 0.80) each period. The periodic interest rate is 1% (1% each period). Using the binomial model, calculate the price of a call option on the stock with an exercise price of $75 and a maturity of two periods. A. $15.09 B. $13.75 C. $16.48 * D. $14.33 E. $15.84 u = 1.30; d = .80; P = (1.01  .80)/(1.30  .80) = .42; (1P) = 1  .42 = .58 P = $80 P 1 = ($80)(1.30) = $104.00 ($80)(0.80) = $ 64.00 P 2 = ($80)(1.30)(1.30) = $135.20 ($80)(1.30)(0.80) = $ 83.20 ($80)(0.80)(1.30) = $ 83.20 ($80)(0.80)(0.80) = $ 51.20...
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 Spring '08
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 Options, Exercise Price, D2, old exam problems

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