Exhibit 22.6 Use the Information Below for the Following Problem(S)

question 1

Multiple Choice

Exhibit 22.6
Use the Information Below for the Following Problem(S)
The following information is provided in the context of a two period (two six month periods) binomial option pricing model. A stock currently trades at $60 per share, a call option on the stock has an exercise price of $65. The stock is equally likely to rise by 15% or fall by 15% during each six month period. The one-year risk free rate is 3%.
-Refer to Exhibit 22.6.Calculate the price of the call option after the stock price has already moved up in value once (Cᵤ) .

• A) $7.77
• B) $14.35
• C) $0
• D) $4.21
• E) $6.44

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