Suppose you expect Moderna's Covid-19 vaccine to be approved by the FDA in two weeks. The consensus among scientists is that there is 80% chance that the FDA will authorize the use of the vaccine in the US but there is 20% chance that the FDA will not approve the vaccine. Moderna's current stock price is $157. Investors believe that if the FDA approves the vaccine, Moderna's stock price will surge to $180, and if the FDA doesn't approve the vaccine, the price will plunge to $135. As a speculating investor, I have decided to buy 200 call options on Moderna's stock with the strike price of $160 and expiration date of the day after FDA's scheduled announcement. Ignoring time value of money, what is the value of the options I have right now?

Suppose you expect Moderna's Covid-19 vaccine to be approved by the FDA in two weeks. The consensus among scientists is that there is 80% chance that the FDA will authorize the use of the vaccine in the US but there is 20% chance that the FDA will not approve the vaccine. Moderna's current stock price is $157. Investors believe that if the FDA approves the vaccine, Moderna's stock price will surge to $180, and if the FDA doesn't approve the vaccine, the price will plunge to $135. As a speculating investor, I have decided to buy 200 call options on Moderna's stock with the strike price of $160 and expiration date of the day after FDA's scheduled announcement. Ignoring time value of money, what is the value of the options I have right now?

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter12: Capital Structure

Section: Chapter Questions

Problem 5PROB

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