You Own One Call Option with an Exercise Price of $27.50

question 20

Multiple Choice

You own one call option with an exercise price of $27.50 on World Wide Stores stock. The stock is currently selling for $28 a share but is expected to sell for either $26 or $30 a share in one year. The risk-free rate of return is 3.65 percent and the inflation rate is 3.2 percent. What is the current call option price if the option expires one year from now?

• A) $1.55
• B) $1.75
• C) $1.37
• D) $1.46
• E) $1.82

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Definitions:

Industrialization

Industrialization refers to the process by which an economy is transformed from primarily agricultural to one based on the manufacturing of goods, leading to technological innovation and changes in society.

Food Production

The process of cultivating crops and livestock for human consumption, encompassing agriculture, aquaculture, and other cultivation methods.

Total Fertility Rate

The average number of children a woman is expected to have over her lifetime, given current birth rates.

Total Fertility Rate

The average number of children that would be born to a woman over her lifetime, based on current birth rates.