You Own One Call Option with an Exercise Price of $55

question 322

Multiple Choice

You own one call option with an exercise price of $55 on Doo Little stock. The stock is currently selling for $55.20 a share but is expected to sell for either $54 or $62 a share in one year. The risk-
Free rate of return is 3 percent and the inflation rate is 2.5 percent. What is the current option price
If the option expires one year from now?

• A) $0.55
• B) $0.79
• C) $1.67
• D) $2.43
• E) $2.72

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Definitions:

Hiring And Training Cost

The expenses associated with recruiting, hiring, and training employees, which include advertising for positions, interviewing, onboarding, and educational programs.

Labor Hours

The total number of hours worked by employees within a specific period, often used to measure productivity or labor costs.

Inventory Holding Cost

Expenses associated with storing unsold goods, including warehousing, insurance, taxes, depreciation, and opportunity costs of capital tied up in inventory.

Marginal Subcontracting Cost

The extra expense associated with outsourcing an additional unit of production or service.