A Call Option Has a Premium of

question 3

Multiple Choice

A call option has a premium of $.50, a strike price of $26, and 3 months to expiration. The current stock price is $25.50. The stock will pay a $.40 dividend two months from now. The risk-free rate is 1%. What is the premium on a 3-month put with a strike price of $40? Assume the options are European style.

• A)$.25
• B)$.51
• C)$1.23
• D)$1.33
• E)$1.50

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