The current price of a stock is $20, and at the end of one year its price will be either $25 or $17. The annual risk-free rate is 8.0%, based on…

The current price of a stock is $20, and at the end of one year its price will be either $25 or

$17. The annual risk-free rate is 8.0%, based on daily compounding. A 1-year call option

on the stock, with an exercise price of $22, is available. Based on the binominal model,

what is the option’s value?

a. $1.285

b. $1.498

c. $1.615

d. $1.825

e. $2.697