Find the Price of a European Call on a Futures

question 26

Multiple Choice

Find the price of a European call on a futures if the futures price is $106,the exercise price is $100,the continuously compounded risk-free rate is 7.2 percent,the volatility is .41 and the call expires in six months.

• A)$14.57
• B)$17.04
• C)$6.00
• D)$19.78
• E)none of the above

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Definitions:

Materials Cost

The cost associated with the raw materials used in the production of goods.

Weighted-Average Method

A costing method used in process costing that averages the costs of all units available for sale during a period, both beginning inventory and produced during the period.

Ending Work

The work or tasks that are in process or yet to be completed at the end of a reporting period.

Process Inventory

Inventory that consists of items that are in various stages of being processed in a manufacturing environment but are not yet completed products.