Call options with an exercise price of $49 and one year to expiration are available. The market price of the underlying stock is currently $40, but this market price is expected to either decrease to $52 or increase to $37 in a year's time. Assume the risk-free rate is 8%. What is the value of the option? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit any commas and the $ sign in your response. For example, an answer of $1,000.50 should be entered as 1000.50.) Numeric Response

Call options with an exercise price of $49 and one year to expiration are available. The market price of the underlying stock is currently $40, but this market price is expected to either decrease to $52 or increase to $37 in a year's time. Assume the risk-free rate is 8%. What is the value of the option? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit any commas and the $ sign in your response. For example, an answer of $1,000.50 should be entered as 1000.50.) Numeric Response

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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