Problem:
Calculate the call option value at the end of one period for a European call option with the following terms:
- The current price of the underlying asset = $80.
- The strike price = $75
- The one period, risk-free rate = 10%
- The price of the asset can go up or down 10% at the end of one period.
Required:
Question 1: What is the fundamental or intrinsic value?
Question 2: What is the time premium?
Note: Please show how to work it out.