Suppose ABC's Stock Price Is Currently $25

question 47

Multiple Choice

Suppose ABC's stock price is currently $25.In the next six months it will either fall to $15 or rise to $40.What is the current value of a six-month call option with an exercise price of $20? The six-month risk-free interest rate is 5 percent (periodic rate) .(Use the risk-neutral valuation method.)

• A)$20
• B)$8.57
• C)$9.52
• D)$13.10

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Definitions:

Tomb

A burial chamber or vault, often constructed of stone, in which the deceased are laid to rest.

Shakyamuni Buddha

Another name for Siddhartha Gautama, the historical founder of Buddhism, who attained enlightenment and shared his insights to help others reach the same state.

Gilded Bronze

A bronze object that has been coated with a thin layer of gold, often used for sculptures, ornaments, and architectural details to signify wealth and status.

Hwangnam-Dong Crown

An exquisite gold crown from the Silla Kingdom, discovered in the Hwangnam-daechong tomb in Gyeongju, South Korea, symbolizing the authority and status of royalty.