A One-Year European Call Option on ABX Corporation with a Strike

question 24

Multiple Choice

A one-year European call option on ABX corporation with a strike price of $50 is currently trading for $1.45,and a one-year European put option on ABX with the same strike price is currently trading for $6.22.If the stock pays a one-time dividend of $1.50 in exactly 6 months,and the risk-free rate is 8% per year,what is the current price of ABX stock?

• A)$42.97
• B)$43.03
• C)$49.63
• D)$52.53
• E)$55.41

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Definitions:

Overhead

The indirect costs or expenses incurred by a business that are not directly tied to specific product production or service.

Conversion Cost

The sum of direct labor costs and manufacturing overhead costs, representing the expenses necessary to convert raw materials into finished goods.

Equivalent Unit

A concept used in cost accounting to represent a partially finished unit in terms of a full finished unit.

Process Costing

A costing method used in manufacturing where costs are assigned to batches or process levels, suitable for homogeneous products.