Consider call option for an asset

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Reference no: EM131318066

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).

Reference no: EM131318066

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