The Current Price of a Stock Is 40

question 10

Multiple Choice

The current price of a stock is 40. After one period, it will be worth either 41.80 or 38.20 with probabilities 0.60 and 0.40, respectively. The risk-free rate of interest over this period, in gross terms, is 1.05 (i.e., a dollar invested at the beginning of the period returns 1.05 at the end of the period) . The no-arbitrage value of a one-period call option on this stock with a strike of 40

• A) is approximately 1.03.
• B) is approximately 1.81.
• C) can be anything between 0 and 1.80.
• D) does not exist in the given setting.

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Definitions:

Stakeholders

Individuals, groups, or organizations that have an interest or concern in an organization's activities, decisions, and success, including employees, customers, suppliers, and investors.

Attraction-Selection-Attrition (ASA) Theory

A theory in organizational psychology that explains how organizations tend to attract, select, and retain individuals with similar personalities and values.

Organizational Members

Individuals who are part of an organization, including both management and non-management staff, contributing to its culture, goals, and outcomes.

Values

Core beliefs or principles that guide and motivate attitudes and actions in individuals and organizations.