Same information as above: Stock A is currently traded at $60. Each year, the stock...
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Finance
Same information as above:
Stock A is currently traded at $60. Each year, the stock price can either go up by 10% or drop by 10%. Your manager asks you to price an European call option with a strike price of $55 and a maturity of two years from now. The YTM of a one-year zero Treasury bond is 2% and the forward rate from year one to year two is 3%.
What is the call option premium as of now if you use the discount rate given in the main part of the question (i.e., The YTM of a one-year zero Treasury bond is 2% and the forward rate from year one to year two is 3%)?
Group of answer choices
$9.42
$7.35
$8.50
$10.85
None of the other answers is correct.
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