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Binomial Model

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The current price of a stock is $20. In 1 year, the price will be either $26 or $16. The annual risk-free rate is 5%. Find the price of a call option on the stock that has a strike price of $21 and theat expires in 1 year. (Hint: Use daily compounding.)

Answer is: $2.39 need to explain how to get it

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Binomial Model

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Given that you can purchase the stock for $21 in one year, then you either make $5 (if the stock price is 26) or you make nothing (if the price is 16). We assume in the ...

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