Suppose ACC's Stock Price Is Currently $25

question 29

Multiple Choice

Suppose ACC'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 per six-month period. (Use the replicating portfolio method.)

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

---

Definitions:

Individualism

A concept that gives preference to individual freedoms, liberties, and rights.

Communism

A political and economic ideology that aims for a classless society where all property is publicly owned, and each person works and is paid according to their abilities and needs.

Egalitarianism

A belief in human equality, particularly with respect to social, political, and economic rights and privileges.

Democratic Elections

A process of choosing representatives or leaders through a vote, where each citizen has a say.