Problem:
You own one call option with an exercise price of $30 on Nadia Interiors stock. This stock is currently selling for $27.80 a share but is expected to increase to either $28 or $34 a share over the next year. The risk-free rate of return is 5% and the inflation rate is 3%.
Required:
Question: What is the current value of your option if it expires in one year?
Note: Please provide reasons to support your answer.