Question

Binomial Option Pricing

10.6 Let S = $100, K = $95, σ = 30%, r = 8%, T = 1, and δ = 0. Let u = 1.3, d = 0.8,
and n = 2. Construct the binomial tree for a call option. At each node provide the
premium, , and B.
10.7 Repeat the option price calculation in the previous question for stock prices of $80,
$90, $110, $120, and $130, keeping everything else fixed. What happens to the initial
option as the stock price increases?

Question: End-of-Chapter Problem 10.7: Repeat the option price calculation in Problem 10.6 for a stock price of $120, keeping everything else fixed. What is the new premium? Find the closest price. [Reference: End-of-Chapter Problem 10.6]

      
Answer choices 36.8, 37.8, 38.8, 40.8

Answer 1