You Own One Call Option with an Exercise Price of $40

question 7

Multiple Choice

You own one call option with an exercise price of $40 on S'more Good stock.The stock is currently selling for $41 a share but is expected to sell for either $37 or $43 a share in one year.The risk-free rate of return is 4.25 percent and the inflation rate is 3.6 percent.What is the current call option price if the option expires one year from now?

• A)$0.55
• B)$0.69
• C)$1.37
• D)$2.43
• E)$2.75

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Definitions:

Coding System

A method or set of rules used to convert information into another form or representation, often for the purpose of confidentiality, data compression, or error correction.

Parasympathetic Nervous System

The subdivision of the autonomic nervous system that operates during relaxed states and that conserves energy.

Physiological Change

Alterations in the normal functions of the body, which can be due to various factors including stress, environmental changes, or health conditions.

Heart Rate

The number of heartbeats per unit of time, typically expressed as beats per minute (bpm), which can vary based on factors like activity level, stress, and overall health.