Consider The Following Data For Microsoft Stock. Stock Price = $254 Exercise Price Of Option = $280 For Annual Risk-Free Rate, Use The YTM Of The 10-Year T-Bond Given In The Test Time To Maturity = 2 Years Assume That The Stock Price Can Go Up Or Down Every Year By 20%. 1. Use The 2-State Option Pricing Model To Find The
Consider the following data for Microsoft stock.
Stock price = $254
Exercise price of option = $280
For annual Risk-free rate, use the YTM of the 10-year T-bond given in the test
Time to maturity = 2 years
Assume that the stock price can go up or down every year by 20%.
1. Use the 2-state Option Pricing model to find the values of Call and Put options with above specifications.
2. Use the Black-Scholes Option Pricing model to find the values of Call and Put options with above specifications
3. How do these prices compare? Why are the prices different?
