A Stock Currently Has a Market Value of $12

question 191

Multiple Choice

A stock currently has a market value of $12.50. The risk-free rate of return is 3%. In one year, the stock is expected to sell for either $11.00 or $17.00. What is the value of a twelve-month call option
With a strike price of $10?

• A) -$4.00
• B) $0
• C) $1.29
• D) $1.82
• E) $2.79

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Definitions:

Measure of Variability

Statistical indicators that describe the spread or dispersion within a data set, such as range, variance, or standard deviation.

Range

A measure of variability, defined to be the largest value minus the smallest value.

Midrange

The statistical measure that calculates the average of the maximum and minimum values in a data set, giving a rough estimate of the data's central tendency.

Standard Deviation

An evaluation metric for the amount of variation or distribution in a set of numerical values.