You have a stock with a current price of $25.00. You are going to value...
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You have a stock with a current price of $25.00. You are going to value a call option with an exercise price of $26.00. The up and down factors are 1.10 and 0.90 respectively. The stock will go through two time periods before it expires. The risk-free rate per time period is 2%. Value this option the following 2 ways:
A) By calculating the necessary hedge ratio(s)
B) By calculating the risk-neutral probability defined as
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