A stock price is currently $50. Over each of the next two three-month periods it is expected to go up by 6% or down by 5%. The risk-free interest rate is 5% per annum with continuous compounding. What is the value of a six-month European call option with a strike price of $51

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Answer:

Using

F=P(1+i)^n

i=0.06

F=50(1+0.06)^5

F=$66.9