Use the Following Information to Answer the Question(s)below

question 10

Multiple Choice

Use the following information to answer the question(s) below.
(Please use a copy of the Cumulative Probabilities for the standard normal distribution for these problems. )
Taggart Transcontinental's stock has a volatility of 25% and a current stock price of $40 per share.Taggart pays no dividends.The risk-free interest rate is 4%.
-Consider a one-year,at-the-money call option on Taggart stock.The effect on the price of this call option due to an increase in the risk-free rate from 4% to 6% is closest to:

• A)$0.50 decrease.
• B)$0.50 increase.
• C)$0.70 decrease.
• D)$0.80 increase.

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Definitions:

Investment Banking

The sale of stocks and bonds for corporations.

Discount Rate

The interest rate charged to commercial banks and other financial institutions for loans received from the central bank.