A Stock with a Current Price of $40 Will Either

question 25

Multiple Choice

A stock with a current price of $40 will either move up to $41 or down to $39 over the next period. The risk-free rate of interest is 2.45%. What is the value of a call option with a strike price of $40?

• A)$.49
• B)$.68
• C)$.86
• D)$.97
• E)$1.21

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Definitions:

Renunciation

The formal or explicit declaration that one refuses to carry out, or is withdrawing from, an agreement or obligation.

Termination

The act of ending something, such as a contract, employment, or agreement, either by mutual consent or unilaterally by one party.

Permanent Loss

A situation where an asset loses value indefinitely, often due to fundamental changes in its market or condition.

Specified Result

A defined outcome or objective that a project or plan is intended to achieve.