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

---

Definitions:

Transcription

The method in which a portion of DNA is transcribed into RNA by the action of the enzyme RNA polymerase.

mRNA

Messenger RNA, a type of RNA molecule that carries genetic information from DNA to the ribosome, where proteins are synthesized.

Coding Region

A portion of DNA or RNA that codes for the amino acid sequence of a protein and is instrumental in protein synthesis.