The price of the call option and price of the put option

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Reference no: EM131341438

Aloha Beach Bum specialises in beachwear. Its current stock price is $28. There is a liquid market for Aloha’s options and both calls and puts are available for trading. The call strike price is $28 while the put strike price is $29. The stock price is expected to either increase by 6% or decrease by 4% every quarter. The expiry date of the option is in 180 days. The risk-free rate is 2.5% (per annum). Assume 360 days in a year and every quarter is 90 days.

Apply binomial model to calculate the following:

(a) The price of the call option.

(b) The price of the put option.

Reference no: EM131341438

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