A Stock Is Selling for $43

question 62

Multiple Choice

A stock is selling for $43.90 a share while the annual risk-free rate is 4.5 percent.What is the current value of a 1-year call option on this stock if the exercise price is $37.50 and you assume the option will finish in the money?

• A)$6.12
• B)$6.40
• C)$6.69
• D)$7.67
• E)$8.01

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Definitions:

Positive and Significant

A description of statistical results indicating that an effect or difference is both greater than zero and statistically unlikely to be due to chance alone.

Significance Level

A statistical measure that determines the threshold of rejecting the null hypothesis, typically represented by alpha (α), such as 0.05 (5%).

Independent Variable

A variable in a statistical model that is manipulated to determine its effect on the dependent variable.

Linear Term

A component of an equation characterized by a variable raised to the first power, indicating a direct proportionality relationship.