Calculate the Price of a One-Month European Call Option Given

question 43

Multiple Choice

Calculate the price of a one-month European call option given the following information: the exercise price is $19,the current share price is $20 and the risk-free interest rate is 15% p.a.Furthermore,the share price is expected to be either $25 or $15 at the end of the month.Assume a risk-neutral world.

• A)$2.35
• B)$2.59
• C)$2.81
• D)$3.11

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Definitions:

Balance of Probabilities

The standard of proof used in civil cases, requiring that something is more likely to be true than not for it to be considered proven.

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Prosecutor

A legal official who conducts criminal proceedings against an accused person on behalf of the state or the public interest.

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