Find the current value of the call option

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Reference no: EM131067120

A stock price is currently $80. It is known that in 4 months it will be either $75 or $85. The risk-free interest rate is 5% per year with continuous compounding. Consider a 4-month European call option with a strike price of $80.

(1) Draw the binomial tree.

(2) Compute ? of the option.

(3) Compute the risk-neutral probability.

(4) Find the current value of the call option.

Reference no: EM131067120

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