What Is the Current Value of a Six-Month Call Option

question 54

Multiple Choice

What is the current value of a six-month call option with an exercise price of $12? The
Six-month risk-free interest rate (periodic rate) is 5%. [Use the risk-neutral valuation method]

• A) $9.78
• B) $10.28
• C) $16.88
• D) $13.33

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Definitions:

Layoff Cost

The expenses associated with reducing an organization's workforce, encompassing severance pay, benefits continuation, and potential legal costs.

Hiring And Training Cost

Expenses associated with recruiting new employees and providing them with the necessary skills and knowledge for their role.

Labor Hours

The total number of hours worked by employees, used as a measure of labor input in the production of goods and services.

Inventory Holding Cost

The total cost associated with storing and managing inventory over a certain period, including warehousing, insurance, depreciation, and obsolescence costs.