# Finance call option and futures – need answers within 6 hours

2. Suppose some stock currently selling for \$80 will either increase in value over the next year to \$100, or decrease in value to \$64. The risk free rate over the period is 10% given annual compounding. [Let r denote the continuously compounded rate per year. Thus er×1 = 1.1.] A European call option on the stock with an exercise price of \$75 matures in one period (1 year). If you want to price the option with a one-step binomial tree.

1. What are u and d?

u = \$100/\$80 = 1.25

d = \$64/%80 = 0.80

2. What are the payoffs from the call in each state of the world?

If stock rises to \$100 next year, the payoff will be \$25 (\$100 – \$75). If stock decreases to \$64 next year, the payoff will be \$0 (\$64 – \$75).

3. What is the European call price at time 0?

= (c1+r)-D/(U-D)

= (1.1 – 0.8) / (1.25 – 0.8)

= .6666 (probability of up)

Call price at t0 = (.6666 * 25 + 0) / 1.1 = \$15.15

4. What are the pseudoprobabilities of the up and down movements in the stock price?

= (c1+r)-D/(U-D)

= (1.1 – 0.8) / (1.25 – 0.8)

= 66.66% probability of up

= (1 – .6666)

= 33.33% probability of down

Basic features
• Free title page and bibliography
• Unlimited revisions
• Plagiarism-free guarantee
• Money-back guarantee
On-demand options
• Writer’s samples
• Part-by-part delivery
• Overnight delivery
• Copies of used sources
Paper format
• 275 words per page
• 12 pt Arial/Times New Roman
• Double line spacing
• Any citation style (APA, MLA, Chicago/Turabian, Harvard)

# Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

### Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

### Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

### Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

### Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

## Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
\$26
The price is based on these factors: