Consider a six-month European call option on a non-dividend-paying stock

Subject:FinancePrice:4.86 Bought11

Share With

Consider a six-month European call option on a non-dividend-paying stock. The stock price is $30, the strike price is $29, and the continuously compounded risk-free interest rate is 6% per annum. The volatility of the stock is 20% per annum.

1) Value this option using the Black-Scholes formula. Illustrate each step in your

calculation.

2) Please use a one-step binomial tree to value this option.

3) Please use a two-step binomial tree to value this option.

4) Compare the results from 2) to 3) with what you get using the Black-Scholes-

Merton formula.