The current price of a stock is $22, and at the end of one year its price will be either $27 or $17.The annual risk-free rate is 6.0%, based on daily compounding.A 1-year call option on the stock, with an exercise price of $22, is available.Based on the binomial model, what is the option's value? (Hint: Use daily compounding.)
A) $2.43
B) $2.70
C) $2.99
D) $3.29
E) $3.62

Question

Quizplus · Accepted Answer

The option's value is calculated using the binomial model, considering the risk-free rate and the possible future stock prices. The present value of the expected payoff, discounted at the risk-free rate, results in an option value of approximately $2.99.

The Current Price of a Stock Is $22, and at the End