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Consider a call option for an asset with the following parameters
• Current spot price is $50
• Option expires in 12 months
• Each month the asset could increase in value by 3% or decrease in value by inverse
• The risk free rate is 25 basis points per month
• S0 = $50, T=12, U=1.03, D=1/1.03, R=1.0025
Explain the premium in terms of what you expect to receive for selling and what you expect to spend for purchasing (all on a discounted basis).
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