You Currently Own a One-Year Call Option on Caspian Way

question 142

Multiple Choice

You currently own a one-year call option on Caspian Way stock. The current stock price is $38.70 and the risk-free rate of return is 3.85 percent. Your option has a strike price of $37.50 and you assume the option will finish in the money. What is the current value of your call option?

• A) $1.20
• B) $2.59
• C) $3.07
• D) $5.13
• E) $7.27

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Definitions:

Heuristic Shortcuts

Simple, efficient rules which people often use to form judgments and make decisions, sometimes leading to cognitive biases.

Stereotyping Heuristic

A mental shortcut that allows individuals to make quick judgments about people or situations based on generalizations or stereotypes.

Representation Heuristic

A cognitive shortcut in which judgments are made based on how much one thing resembles another.

Elimination by Aspect

A decision-making process where options are eliminated based on the absence of desired characteristics.