This morning, you purchased a call option on Schoolhouse Supply Co. stock that expires in one year. The exercise price is $40. The current price of the stock is $43.40 and the risk-free rate of return is 3.6 percent. Assume the option will finish in the money. What is the current value of the call option?
C0 = $43.40 - [$40/(1 + 0.036)] = $4.79
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74.
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You currently own a one-year call option on Rail Company, Inc., stock. The current stock price is $52.75 and the risk-free rate of return is 4.25 percent. Your option has a strike price of $50 and you assume the option will finish in the money. What is the current value of your call option?
C0 = $52.75 - [$50/(1 + 0.0425)] = $4.79
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75.
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The common stock of Hazelton Refiners is selling for $72.30 a share. U.S. Treasury bills are currently yielding 4.8 percent. What is the current value of a one-year call option on this stock if the exercise price is $70 and you assume the option will finish in the money?
C0 = $72.30 - [$70/(1 + 0.048)] = $5.51
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76.
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The common stock of Westover Foods is currently priced at $28.80 a share. One year from now, the stock price is expected to be either $25 or $30 a share. The risk-free rate of return is 4.2 percent. What is the current value of one call option on this stock if the exercise price is $27.50?
Number of options needed = ($30 - $25)/(2.50 - 0) = 2
$28.80 = 2 C0 + [$25/(1 + 0.042)]; C0 = $2.40 |
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