Exhibit 22.6 Use the Information Below for the Following Problem(S)

Multiple Choice

Exhibit 22.6
Use the Information Below for the Following Problem(S)
The following information is provided in the context of a two period (two six month periods) binomial option pricing model. A stock currently trades at $60 per share, a call option on the stock has an exercise price of $65. The stock is equally likely to rise by 15% or fall by 15% during each six month period. The one-year risk free rate is 3%.
-Refer to Exhibit 22.6.Calculate the price of the call option today (C₀) .

A) $7.77
B) $14.35
C) $0
D) $4.21
E) $6.44