Calculate the Price of a European Call Option If the Price

question 28

Multiple Choice

Calculate the price of a European call option if the price of the equivalent European put option is $5 and the share price,exercise price and risk-free rate (continuously compounded) are $31,$28 and 12% p.a. ,respectively.The options have three months to expiry.

• A)$1.17
• B)$8.83
• C)$8.82
• D)$9.63
• E)$1.18

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Definitions:

Allowance Account

An account used to record adjustments for potential future losses or defaults on receivables, essentially reducing the value of accounts receivable to a more realistic figure.

Accounts Receivable

Debts incurred by customers to a company for using or obtaining its goods or services without making immediate payment.

Allowance Method

An accounting technique that adjusts accounts receivable for the estimated uncollectible amounts.

Accounts Receivable

Unsettled charges owed by clients to a company for the consumption or acquisition of goods or services.