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Determine the price of a one-year call option

Question:

Stock A currently trades at $50 a share. At the end of the year, it can either be up by a factor u = 1:3 or down by a factor d = 0:5.

What is the price of a one-year call option with exercise price X = $55 if the (risk-free) interest rate is r = 10%?

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Finance Basics: Determine the price of a one-year call option

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Finance Basics: Determine the price of a one-year call option

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