1 Stock Z is trading at $50 today. In one year, the value will go either up to $62.50 or down to $40. A call option on Z with exactly one year to expiration has a strike price of $55. Inflation is high, so the interest rate is 10% per year. Find the value of the call option next year if the stock price goes up. a. 7.50 b. 0 c. 22.50 d. 12.50
1 Stock Z is trading at $50 today. In one year, the value will go either up to $62.50 or down to $40. A call option on Z with exactly one year to expiration has a strike price of $55. Inflation is high, so the interest rate is 10% per year. Find the value of the call option next year if the stock price goes up. a. 7.50 b. 0 c. 22.50 d. 12.50
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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1 Stock Z is trading at $50 today. In one year, the value will go either up to $62.50 or down to $40. A call option on Z with exactly one year to expiration has a strike price of $55. Inflation is high, so the interest rate is 10% per year.
Find the value of the call option next year if the stock price goes up.
a. 7.50
b. 0
c. 22.50
d. 12.50
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