(The effect of exercise price on call option value) On 11 May 2015 IBM’s stock price was $171 per share. Call options on IBM expiring on 16 October 2015 with an exercise price of $180.00 sold for $4.15.

a. Should a call with an exercise price of $180.00 expiring on 15 January 2016 sell for more than $4.15? Explain.

b. Look at the following table. Are there options that are clearly mispriced?

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IBM Call Options Expiring 15 Jan 16 Exercise Call option price X price 90 83.10 95 56.30 100 73.30 105 66.88 110 61.76 115 66.86 120 51.99 125 48.25 130 43.23 135 38.22