The stock price of Apax Inc. is currently $105. The stock price a year from now will be either $130 or $90 with equal probabilities. The interest rate at which investors can borrow is 10%. Using the binomial OPM, the value of a call option with an exercise price of $110 and an expiration date 1 year from now should be worth ________ today.

Question

Quizplus · Accepted Answer

H = 11eaaae8_8b44_5fbe_a4b8_534f57eb025d_TB6474_11 = 0.50
Buying the stock and borrowing the present value of $90 will give the same payoff as (1/0.50) calls.
C = 0.5 11eaaae8_8b44_86cf_a4b8_df9fda339630_TB6474_11 = 11.59

The Stock Price of Apax Inc