Homework Answers
Curley buys one year 50-strike price european call option, hence Moe will receive premium of $7.43. now Moe will invest the premium for 1 year at rate of 6.5%
Thus Value of premium as at exipry = 7.43(1.065) = 7.91295$
Now Curley has right to buy shares hence he will buy when market price will be higher than strike price and if market price is higher than strike price than Moe will bear loss.
Here Moe's profit is 0, hence spot price as at expiry must be Strike price+ (Premium + interest)
=50+7.91295
=$57.91295
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