Answer to Question #6211 in Economics of Enterprise for LaMarcus Streeter

Question #6211

4. The current price of a stock is $22, and at the end of one year its price will be either $27 or $17. The annual risk-free rate is 6.0%, based on daily compounding. A 1-year call option on the stock, with an exercise price of $22, is available. Based on the binominal model, what is the option's value?
a. $2.43
b. $2.70
c. $2.99
d. $3.29
e. $3.62

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