The share price of Ajax Inc. is currently $105. The share price a year from now will be either $130 or $90 with equal probabilities. The interest rate at which investors can borrow is 10%. Using the binomial OPM, the value of a call option with an exercise price of $110 and an expiration date one year from now should be worth ________ today.
A)$11.59
B)$15.00
C)$20.00
D)$40.00

Question

Quizplus · Accepted Answer

The binomial option pricing model calculates the option price by considering the possible future outcomes and their probabilities. The expected future price is $110, and the present value of the expected payoff is $11.59 when discounted at the risk-free rate of 10%.

The Share Price of Ajax Inc