Suppose ABC's Stock Price Is Currently $25

question 28

Multiple Choice

Suppose ABC's stock price is currently $25. In the next six months it will either fall to $15 or rise to $40. What is the current value of a six-month call option with an exercise price of $20? The six-month risk-free interest rate is 5 percent (periodic rate) . [Use the risk-neutral valuation method.]

• A)$20.00
• B)$8.57
• C)$9.52
• D)$13.10

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