A stock with a current price of $37 will either move up by a factor of 1.20 or down by a factor of 0.80 each period over the next two periods. The risk-free rate of interest is 4 percent. What is the current value of a call option with a strike price of $40?
A. $4.71
B. $5.09
C. $5.13
D. $4.16
E. $4.42
Answer: E
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