USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 5

Multiple Choice

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, and a call option on the stock has an exercise price of $65. The stock is equally likely to rise by 15 percent or fall by 15 percent during each six-month period. The one-year risk free rate is 3 percent.
-Refer to Exhibit 16.2. Calculate the price of the call option today (C₀) .

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

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Definitions:

Navigation Acts

A series of English and later British laws that regulated trade between England and its colonies to control colonial commerce and ensure it benefitted England.

Colonial Trade

Trade between colonial powers and their colonies, often involving the exchange of raw materials for finished goods, and playing a central role in the economic systems of empires.

Dutch

Referring to the people, language, or culture associated with the Netherlands, a country in western Europe.

Articles of Capitulation

Formal agreements in military conflicts for the surrender of a party, often detailing the terms of surrender and treatment of captives.