Problem 22-26 Two-State Option Pricing Model Ken is interested in buying a European call option written on Southeastern

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Problem 22 26 Two State Option Pricing Model Ken Is Interested In Buying A European Call Option Written On Southeastern 1 (59.83 KiB) Viewed 49 times

Problem 22-26 Two-State Option Pricing Model Ken is interested in buying a European call option written on Southeastern Airlines, Inc., a non-dividend-paying common stock, with a strike price of $90 and one year until expiration. Currently, the company's stock sells for $89 per share. Ken knows that, in one year, the company's stock will be trading at either $110 per share or $75 per share. Ken is able to borrow and lend at the risk-free EAR of 4.5 percent a. What should the call option sell for today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the delta of the option? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. How much would Ken have to borrow to create a synthetic call? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) d. How much does the synthetic call option cost? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Call option price b. Delta of the option c. Amount to borrow d. Call option price