Call options are available with one year until expiration. Continuously compounded T-bills currently yield 4.93 %. Suppose the current price of Ervin stock is $73. What is the value of the call if the strike price is $55 per share?

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter20: Financing With Derivatives
Section20.A: The Black-scholes Option Pricing Model
Problem 1P
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The price of Ervin Corp. stock will either be $66 or $86 at the end of the year. Call options are available with one year until expiration. Continuously compounded T-bills currently yield 4.93 %. Suppose the current price of Ervin stock is $73. What is the value of the call if the strike price is $55 per share? (Round answer to 2 decimal places. Do not round intermediate calculations).

 

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