You work on a proprietary trading desk of a large investment…
You work on a proprietary trading desk of a large investment bank, and you have been asked for a quote on the sale of a call option with a strike price of $51 and one year until expiration. The call option would be written on a stock that does not pay a dividend. From your analysis, you expect that the stock will either increase to $69 or decrease to $36 over the next year. The current price of the underlying stock is $51, and the risk-free interest rate is 4% per annum. The implied probability is 0.516. What is the fair market value for the call option under these conditions?