Ask Question
13 April, 13:00

Assume that the current price of a stock is $80 and that 1 year from now the stock will be worth either $90 or $75. The exercise price of a call option for this stock is $74. Assuming a riskless interest rate of 6% per year (and discrete compounding), what is the call option price

+1
Answers (1)
  1. 13 April, 14:29
    0
    Answer: $17.71

    Explanation:

    Calculation of delta = (90 - 74) + (75 - 74) / 90 - 75

    = 16 + 1 / 15

    = 1.13

    Calculation of futurevalue of portfolio = (90 * 1.13) - 16 = 85.7

    Present value of portfolio = 85.7 / 1.03 = 83.20

    Present value of delta share = 74 * 1.13 = 65.49

    Value paid by call holder = 83.20 - 65.49 = 17.7
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Assume that the current price of a stock is $80 and that 1 year from now the stock will be worth either $90 or $75. The exercise price of a ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers