Exhibit 14.4 The current stock price of ABC Corporation is $53.50. ABC Corporation has the following...
Exhibit 14.4
The current stock price of ABC Corporation is $53.50. ABC Corporation has the following put and call option prices that expire six months from today. The risk-free rate of return is 5 percent, and the expected return on the market is 11 percent.
|
Exercise Price |
Put Price |
Call Price |
|
50 |
$1.50 |
$5.75 |
|
55 |
$3.25 |
--- |
Refer to Exhibit 14.4. What should the price be of a call option that expires six months from today with an exercise price of $55?
|
a. |
$1.33 |
|
|
b. |
$3.08 |
|
|
c. |
$4.58 |
|
|
d. |
$6.07 |
|
|
e. |
$6.33 |
Homework Answers
Using put call parity
Call price
C=S+P-X/(1+r)^t=53.50+3.25-55/(1+5%)^(6/12)=3.0754960
Add Answer to:
Exhibit 14.4
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