The Common Stock of Winsson, Inc

question 68

Multiple Choice

The common stock of Winsson, Inc. is currently priced at $52.50 a share. One year from now, the stock price is expected to be either $54 or $60 a share. The risk-free rate of return is 4 percent. What is the value of one call option on Winsson stock with an exercise price of $55?

• A) $.39
• B) $.41
• C) $.45
• D) $.48
• E) $.51

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Definitions:

Price Floor

A government-imposed minimum price level for a particular commodity or service, aimed at protecting producers.

Legal Minimum

A legally established lower threshold for payments or conditions, such as minimum wage.

Good Sold

Refers to a product that has been purchased by a buyer from a seller in a transaction.

Nonbinding Price Floor

A minimum price set by law above which the market price can lie, without any impact on the market price because the floor is set below equilibrium.