Option Valuation: Consider a Call Option with a Strike Price

question 47

Multiple Choice

Option valuation: Consider a call option with a strike price of $20, which expires in one year. The risk-free rate of interest is 5 per cent. The underlying share price is $30. Without arbitrage, which of the following is a possible price for the call option?

• A) $0
• B) $8
• C) $15
• D) None of the above

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Definitions:

Nuisance

A person’s use of her property in a manner that unreasonably interferes with another’s use and enjoyment of his land.

Clean Air Act

United States federal law designed to control air pollution on a national level.

Civil Penalties

Financial sanctions imposed by a government agency as punishment for violations of statutes or regulations.

Criminal Penalties

Criminal penalties are the punishments imposed by the judicial system for criminal offenses, which can include fines, probation, community service, or imprisonment.