A Stock Is Currently Priced at $45

question 53

Multiple Choice

A stock is currently priced at $45. A call option with an expiration of one year has an exercise price of $60. The risk-free rate is 14 percent per year, compounded continuously, and the standard deviation of the stock's return is infinitely large. What is the price of the call option?

• A)$39.47
• B)$42.08
• C)$45.00
• D)$52.63
• E)$60.00

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Definitions:

Marketable Securities

Financial instruments that can be easily converted to cash without significant loss of value.

Restrictive Policy

This refers to a fiscal or monetary policy aimed at reducing the amount of money circulating within an economy, often to curb inflation.

Setup Equipment Costs

The initial costs associated with purchasing and installing new equipment or machinery for use in operations.

Shortage Cost

The costs incurred when demand for a product exceeds the supply, including potential lost sales, customer dissatisfaction, and additional operational costs to manage the shortage.