The Stock Price of Atlantis Corp

question 2

Multiple Choice

The stock price of Atlantis Corp. is $43 today. The risk-free rate of return is 10%, and Atlantis Corp. pays no dividends. A call option on Atlantis Corp. stock with an exercise price of $40 and an expiration date 6 months from now is worth $5 today. A put option on Atlantis Corp. stock with an exercise price of $40 and an expiration date 6 months from now should be worth ________ today.

• A) $0.05
• B) $0.14
• C) $2
• D) $3.95

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Definitions:

Discount Rate

The interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows.

Fair Value Enterprise Method

An accounting approach for valuing a subsidiary company at its current market value rather than its book value or cost in the financial statements of a parent company.

Identifiable Net Assets

Assets that can be separately identified and measured apart from the business entity, often relevant in the valuation of companies for acquisition or reporting purposes.

Non-Controlling Interest

The portion of equity in a subsidiary not owned directly or indirectly by the parent company.