You Currently Own a One-Year Call Option on Way-One, Inc

question 394

Multiple Choice

You currently own a one-year call option on Way-One, Inc. stock. The current stock price is $26.50 and the risk-free rate of return is 4 percent. Your option has a strike price of $20 and you assume
That it will finish in the money. What is the current value of your call option?

• A) $6.25
• B) $6.50
• C) $6.76
• D) $7.13
• E) $7.27

---

Definitions:

Long-Run Economic Profit

The sustainable profit a firm earns over time, assuming entry and exit in the market are possible and adjustments have been made.

Self-Interest

An individual's personal gain or advantage, especially when pursued without regard for others.

Price-Taker Markets

Markets in which individual sellers or buyers have no control over setting prices and must accept the prevailing market price.

Homogeneous Product

Products that are of the same quality and are indistinguishable by buyers.