The price of Ervin Corp. stock will be either $52 or $83 at the end of the year.

Question

The price of Ervin Corp. stock will be either $52 or $83 at the end of the year. Call options are available with one year to expiration. T-bills currently yield 5 percent.

Suppose the current price of the stock is $60. What is the value of the call option if the exercise price is $50 per share? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Suppose the exercise price is $80 and the stock price is $60. What is the value of the call option now? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Suppose the current price of the stock is $60. What is the value of the call option if the exercise price is $50 per share? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Explanation / Answer

A)

excerise price is lower than stock price so buy the option

value of option = $60 - $50 = $10

B)

excerise price is more than stock price so not exercise the option.

Value of option = 0

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.