Consider a binomial world in which the current stock price of 80 can either go up by 10 percent or down by 8 percent.The risk-free rate is 4 percent.Assume a one-period world.Answer questions 12 through 15 about a call with an exercise price of 80.
-What would be the call's price if the stock goes up?
A)3.60
B)8.00
C)5.71
D)4.39
E)none of the above

Question

Quizplus · Accepted Answer

If the stock goes up by 10 percent, its new price would be 80 * 1.10 = 88. The call option allows buying at 80, so the value if the stock goes up is 88 - 80 = 8.

Consider a Binomial World in Which the Current Stock Price