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A stock price is currently $100. Over each of the next two three-month periods, it is expected to increase by 10% or fall by 10%. Consider a six-month European call option with a strike price of $105. The risk-free rate is 8%.

a: What is the risk-neutral probability of a 10% rise in the first quarter?

b: What is the value of the call option?

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Statistics and Probability, Statistics

Category:- Statistics and Probability
Reference No.:- M9372880

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