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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