Binomial pricing: Assume that the stock of ABC, Inc., is currently trading for $16 and will either rise to $50 or fall to $2 in one year. The risk-free rate for one year is 8 percent. You own a portfolio that consists of one call option and one put option. Both options have a strike price of $15, and both expire in one year. What is the value of your portfolio?
A) $0
B) $15
C) $21.40
D) $18.52
Correct Answer:
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