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You try to price the options on XYZ Corp. The current stock price of XYZ is $100/share. The risk-free rate is 5%. You project the stock price of XYZ...
You try to price the options on XYZ Corp. The current stock price of XYZ is $100/share. The risk-free rate is 5%. You project the stock price of XYZ will either be $90 or $120 in a year. Assume you can borrow or lend money at the risk-free rate. Use risk-neutral approach to price the 1-year call and 1-year put option on XYZ Corp with the strike price of $105