What Is the Price of a $25 Strike Call? Assume

question 12

Multiple Choice

What is the price of a $25 strike call? Assume S = $23.50,σ = 0.24,r = 0.055,the stock pays a 2.5% continuous dividend and the option expires in 45 days?

• A) $0.60
• B) $0.50
• C) $0.40
• D) $0.30

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Definitions:

Annual Cash Inflow

The total amount of money received by a company from its various activities, including sales, investments, and financing, within a year.

Discount Rate

The interest rate critical for calculating the present-day valuation of future cash flows in discounted cash flow methodology.

Net Present Value

The difference between the present value of cash inflows and the present value of cash outflows, used in capital budgeting to assess the profitability of investments or projects.

Initial Cost

Initial cost refers to the total amount of expenses incurred when acquiring a new asset or starting a new project, including purchase price and any additional costs necessary to get the asset into use.