Question

This morning, you purchased a call option on School house Supply Co. stock that expires in one year. The exercise price is $37.50. The current price of the stock is $37.60 and the risk-free rate of return is 3.1 percent. Assume the option will finish in the money. What is the current value of the call option?

Answer 1

Answer:

The current value of the call option is $ 1.2275

Explanation:

According to the given data, we have the following:

Current stock price=$37.60

exercise price=$37.50

the risk-free rate of return=3.1%

Therefore, in order to calculate the current value of the call option we have to use the following formula:

Value of Call = Current Stock Price - [ Exercise Price / (1+ Risk free rate)]

Value of Call = $ 37.60 - [ $ 37.50/(1+0.031))]

Value of Call = $ 37.60 - 36.37245

Value of Call = $ 1.2275

The current value of the call option is $ 1.2275