Exhibit 22.5 Use the Information Below for the Following Problem(S)

Exhibit 22.5
Use the Information Below for the Following Problem(S)
The information provided is relevant in the context of a one period (one year) binomial option pricing model. A stock currently trades at $50 per share, a call option on the stock has an exercise price of $45. The stock is equally likely to rise by 25% or fall by 25%. The one-year risk free rate is 2%.
-Refer to Exhibit 22.5.Calculate the possible prices of the stock one year from today.

A) $37.50 or $17.50.
B) $62.50 or $37.50.
C) $62.50 or $17.50.
D) $50 or $45.
E) None of the above.