Question

T-bills currently yield 4.8 percent. Stock in Nina Manufacturing is currently selling for $85 per share. There is no possibility that the stock will be worth less than $78 per share in one year. a-1. What is the value of a call option with a $70 exercise price?

Answer 1

Answer:

The correct answer is $18.206.

Explanation:

The yield percentage is given as 4.8%.

The stock price is given as $85.

The exercise price of the call option is given as $70.

Value of the call option will be

= Stock price- present value of the exercise price

= $85-\frac{70}{1+0.048}$

= $85 - $66.79

= $18.206

So, the value of call option is $18.206.