Use the Following Information to Answer the Question(s)below

question 3

Multiple Choice

Use the following information to answer the question(s) below.
Consider an American put option on Rearden Metal stock with a strike price of $60 and one year to expiration.Assume that Rearden pays no dividends,its stock is currently trading at $15 per share,and the one-year interest rate is 5%.Also assume that it is optimal to exercise this put option early.
-The maximum value of a one-year American call option on Rearden Metal with a strike price of $60 per share is closest to:

• A)$0.
• B)$1.84.
• C)$2.48.
• D)$2.86.

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Definitions:

Tax Receipts

The revenue collected by the government through various forms of taxes.

Borrowing

The act of obtaining resources (usually money) from another party with the promise of repayment under defined terms, often involving interest.

Marginal Tax Rate

The rate of tax applied to the last unit of income or additional dollar earned, indicating how much of the next earned dollar will be taken in taxes.

Federal Personal Income Tax

Tax levied by the federal government on individuals' income, with rates varying based on income levels.