The Current Stock Price of Johnson and Johnson Is $64

question 38

Multiple Choice

The current stock price of Johnson and Johnson is $64 and the stock does not pay dividends. The instantaneous risk free rate of return is 5%. The instantaneous standard deviation of J&J's stock is 20%. You wish to purchase a call option on this stock with an exercise price of $55 and an expiration date 73 days from now.
-The stock price of Ajax Inc.is currently $105.The stock price a year from now will be either $130 or $90 with equal probabilities.The interest rate at which investors can borrow is 10%.Using the binomial OPM,the value of a call option with an exercise price of $110 and an expiration date one year from now should be worth __________ today.

• A) $11.59
• B) $15.00
• C) $20.00
• D) $40.00

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Definitions:

Federal Subsidies

Federal subsidies are financial support and assistance provided by the federal government to organizations, businesses, and individuals in various sectors, including agriculture, health care, and energy, to support public policy objectives.

Interstate Commerce Clause

A provision in the U.S. Constitution granting Congress the power to regulate commerce among the states.

Individual Mandate

A requirement, initially part of the Affordable Care Act, that required individuals to have health insurance or face a penalty, intended to ensure that everyone is covered by health insurance.

American Federalism

A political system in which power is divided and shared between a national, or federal, government and state governments, each with its own set of powers.