Video Game Company - Brainteaser
Video Game Company
Probability
A video game company is launching a new game. There's a 30% chance the game will be a big hit, and a 70% chance it will not gain much popularity. If the game is successful, their stock value will be $100 per share the next day; if it's not, it will be $20 per share. Today the stock trades at $60, and the one‑day risk‑free rate is 0%. You have the option (but not the obligation) to buy the company's stock for $50 per share the day after the game's release. What is the fair value of this option?