I checked errata and it is not in their list. I was planning to write to CFAI but thought of first checking here in case anyone is getting what book is saying. I will soon drop a note to CFAI and update here when I get any response from them
Good point. The risk-free rate used to calculated the risk-neutral probability is not adjusted for the tenor of the call. Not in the Schweser’s nor in the CFAI book. It uses the “r” directly. I will run a calculation for that case.
First CFAI replied to my emal that interest rate to be used is 0.0366 [=0.0488 * (9/12)].
I then replied back that even after using 0.0366 the answer I am getting for call price is 10.01 and not 10.0259.
Then they replied that 10.01 is also correct. The CFAI has used excel to calculate the answer and hence book is saying 10.0259
Below is what they replied second time
"The answer you get is basically the same as what we showed; the difference between the answer you arrive at and the amount shown in the exhibit is due to rounding. The exhibit was prepared using excel.
Another thing is that didn’t see any example with that procedure. That was a 270-day call, what about a 2-year call? Must we use 1.098? Didn’t find that case in the books (shweser or CFAI).