Solve for the current value of the call option using both a three-period and four-period binomial option pricing model assuming all parameters except time are the same.
The information needed is:
Stock price = $39
Exercise price = $40
Time to maturity = 0.5 years
Risk-free rate = 10% per year
Stock volatility = standard deviation of 40%/year
Using the Black-Scholes option pricing formula, calculate the value of a European call option that will not pay a dividend. What is the intrinsic value of this option? What is the time value of this option?