Suppose ACC's Stock Price Is Currently $25

question 56

Multiple Choice

Suppose ACC's stock price is currently $25. In the next six months it will either fall to $15 or rise to $40. What is the current value of a six-month call option with an exercise price of
$20? The six-month risk-free interest rate is 5% (periodic rate) . [Use the replicating portfolio method]

• A) $20.00
• B) $8.57
• C) $9.52
• D) $13.10

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Definitions:

Framed in Red

A psychological or visual technique where information or objects are presented with a red frame to enhance attention or emotional impact.

Spanked

Struck on the buttocks with an open hand or object as a form of punishment.

Conditioned Stimulus

A previously neutral stimulus that, after becoming associated with the unconditioned stimulus, triggers a conditioned response.

Unconditioned Stimulus

A stimulus that naturally triggers a response without any prior learning.