A Call Option Has a Price of $4 $0$

question 8

Multiple Choice

A call option has a price of $4.50 with exercise price of $14.00 and underlying asset price of $15.00.If the time to maturity is 60 days and the risk-free return is 7% p.a. ,what is the pricing bounds error?

• A) \( 0 \)
• B) \( 0.50 \)
• C) \( 0.66 \)
• D) \( 1.16 \)

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Definitions:

TR

Typically stands for Total Revenue, which is the total income received by a firm from the sale of its goods or services.

TFC

Total Fixed Costs (TFC) are the sum of all costs that remain constant regardless of the level of production or output in a company.

Marginal Revenue

The additional income that a company generates from selling one more unit of a good or service.

Average Variable Cost

The per-unit variable cost of production, calculated by dividing total variable costs by the quantity of output produced.