The Current Price of a Stock Is $22

question 1

Multiple Choice

The current price of a stock is $22. In one year, the price will be either $27 or $17. The annual risk-free rate is 6 percent. What is the price of a call option on the stock that has an exercise price of $22 and that expires in one year, rounded to the nearest dollar? [Hint: use daily compounding.]

• A) $1.00.
• B) $2.00.
• C) $3.00.
• D) $4.00.
• E) $5.00.