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1. Call Options Consider a 1-period binomial model with R=1.02, S0=100, u=1/d=1.05. Compute the value of a European call option on the stock with strike K=102. The stock does not pay dividends. Please submit your answer rounded to two decimal places. So for example, if your answer is 3.4567 then you should submit an answer of 3.46.
2. Call Options II When you construct the replicating portfolio for the option in the previous question how many dollars do you need to invest in the cash account? Please submit your answer rounded to three decimal places. So for example, if your answer is −43.4567 then you should submit an answer of −43.457.
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The price of a European call option on a stock with a strike price of $50 is $6. The stock price is $51, the continuously compounded risk-free rate (all maturities) is 6% and the time to maturity is one year. The fair price of a one-year European put..
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