You want to value its 2-year option using the binomial model. The stock will either increase in value by 20% or fall in value by 20%. The annual risk-free rate is 6%. Here are the steps for you to solve the problem.
a) Construct a two-period binomial tree for the value of the stock.
b) Calculate the value of the European call option with a strike price of $60.
Answers: 1
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