Assume that you have an American call option expiring next year with exercise price of $40 on a stock which currently trades at $35. You expect the stock to increase by a factor of 1.18 and decrease by a factor of 0.75. If the interest rate is 6%, the option value today is closest to:

Assume that you have an American call option expiring next year with exercise price of $40 on a stock which currently trades at $35. You expect the stock to increase by a factor of 1.18 and decrease by a factor of 0.75. If the interest rate is 6%, the option value today is closest to:

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter5: Financial Options

Section: Chapter Questions

Problem 1P

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100%

Select one:

a. $6.29

b. $8.73

c. $5.93

d. $8.23

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