Assignment:
Q1. The current price of a stock is $20. In 1 year, the price will be either $26 or $16. The annual risk-free rate is 5 percent. Find the price of a call option on the stock that has an exercise price of $21 and that expires in 1 year. (Hint: Use daily compounding.)
Q2. The current price of a stock is $15. In 6 months, the price will be either $18 or $13. The annual risk-free rate is 6 percent. Find the price of a call option on the stock that has an exercise price of $14 and that expires in 6 months. (Hint: Use daily compounding.)
Your answer must be, typed, double-spaced, Times New Roman font (size 12), one-inch margins on all sides, APA format and also include references.