Phocuscorp's Stock Is Currently Worth $60

question 16

Multiple Choice

Phocuscorp's stock is currently worth $60. The replicating portfolio consists of one-half share and $24.50 risk-free loan. Compute the value of call option.

• A) $5.5
• B) $4.5
• C) $5.0
• D) $6.0

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Definitions:

Scarcity

A fundamental economic problem of having seemingly unlimited human wants in a world with limited resources, which leads to the necessity of making choices on how to allocate resources.

Resources

Assets or inputs used in the production of goods and services, such as time, labor, and capital.

Economy

An extensive network of activities related to producing, consuming, and exchanging that assists in allocating limited resources.

Severe Recession

A period of significant decline in economic activity across the economy, lasting longer than a few months.