The Underlying Stock for a European Exchange Option Has S

question 7

Multiple Choice

The underlying stock for a European exchange option has S = $27.15,div = 2.0%,and ?σ = 0.18.The strike stock has S = $30.00,div = 0.0%,and σ = 0.22.The two stocks have a correlation coefficient of 0.73.If the exchange option expires in 2 years,what is the price of the call using a Black-Scholes approach?

• A) $0.88
• B) $0.98
• C) $1.09
• D) $1.19

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Definitions:

Industrialized Nation

An Industrialized Nation is a country with a developed economy characterized by significant industrial activity, technological advancement, and higher living standards.

Dependent Population

The segment of the population that relies on others for support, typically including children, the elderly, and those unable to work.

Industrial Revolution

A period of major industrialization that took place during the late 1700s and early 1800s, heralding significant changes in technology, economy, and society.

Economic Growth

The rise in the real market value of goods and services generated by an economy over a period.