A Three-Month At-The-Money Call Option on a Stock Index Is

question 26

Multiple Choice

A three-month at-the-money call option on a stock index is trading at $5;the index is trading at $50.A forward start option on the index that comes to life in one month,has a life of three months from that point and that will be at-the-money when it comes to life,is trading at $4.98.The one-month rate of interest is 2% in continuously-compounded and annualized terms.What is the one-month forward price of the index?

• A)$50.00
• B)$50.05
• C)$50.25
• D)$50.45