Suppose Carol's Stock Price Is Currently $20

question 7

Multiple Choice

Suppose Carol's stock price is currently $20. In the next six months it will either fall to $10 or rise to $40. What is the current value of a six-month call option with an exercise price of $15? The six-month risk-free interest rate is 5 percent per six-month period. (Use the replicating portfolio method.)

• A)$8.73
• B)$10.28
• C)$16.88
• D)$13.33

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Definitions:

Ego

In psychology, represents the part of the human psyche that processes experiences and operates as a mediator between the conscious and unconscious minds.

Psychosexual Development

A Freudian theory that proposes individuals pass through a series of stages centered on erogenous zones during development, shaping personality.

Id, Ego, and Superego

Components of the human psyche in Freudian theory, with the id representing instinctual desires, the ego mediating reality, and the superego embodying moral standards.

Libido

A term used in psychoanalytic theory to denote the sexual drive or desire, often presented as an energy or force.