A Stock Is Currently Priced at $52

question 40

Multiple Choice

A stock is currently priced at $52.50 a share.One year from now,the stock price is expected to be either $54 or $60 a share.The risk-free rate of return is 4 percent.What is the value of a 1-year call option with an exercise price of $55?

• A)$.39
• B)$.41
• C)$.45
• D)$.48
• E)$.51

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Definitions:

WTO

The World Trade Organization, an international body that sets global rules for trade between nations to ensure trade flows smoothly, predictably, and freely.

Free Trade Arrangements

Agreements between countries that reduce or eliminate barriers to trade, such as tariffs and import quotas, to promote economic cooperation.

WTO

The World Trade Organization, an international body that deals with the rules of trade between nations, aiming to ensure that trade flows smoothly, predictably, and freely.

NAFTA

The North American Free Trade Agreement; a treaty between the United States, Canada, and Mexico that eliminated most tariffs on trade between them.