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Basic Question 1 of 8
Assume a stock price is $55 and in the next year it will either rise by 20% or fall by 16%. The risk-free interest rate is 5%. A call option on this stock has an exercise price of $60. What is the price of a call option that expires in one year?
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Craig Baugh
Learning Outcome Statements
describe and interpret the binomial option valuation model and its component terms;
describe how the value of a European option can be analyzed as the present value of the option's expected payoff at expiration;
CFA® 2025 Level II Curriculum, Volume 5, Module 32.