USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 23

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The current stock price of ABC Corporation is $53.50. ABC Corporation has the following put and call option prices that expire six months from today. The risk-free rate of return is 5 percent, and the expected return on the market is 11 percent.

-Refer to Exhibit 14.4. What should the price be of a call option that expires six months from today with an exercise price of $55?

• A) $1.33
• B) $3.08
• C) $4.58
• D) $6.07
• E) $6.33

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Definitions:

Variable Costs

Outlays that shift directly in line with the magnitude of output or production.

Production

The creation of goods and services using labor, technology, and inputs of raw materials to meet consumer demand.

Fixed Costs

Fixed costs that are unaffected by the amount of goods produced or sold, like rent, wages, and insurance charges.

Rent

A periodic payment made for the use of land, a building, or other property.