alleryStart learning →A stock at Rs 100 can move to Rs 120 or Rs 80 in one step, and the rate is zero. What is a call of strike Rs 100 worth?
ARs 20
BRs 5
CRs 15
DRs 10
Answer & Solution
Correct answer: D. Rs 10
Risk-neutral probability is (1 minus 0.8)/(1.2 minus 0.8) = 0.5, so value = 0.5 x 20 + 0.5 x 0 = Rs 10.
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