Question
A stock is currently selling $100. Per share a year from now the stock will sell for either 106 per share or $114 per share.
A stock is currently selling $100. Per share a year from now the stock will sell for either 106 per share or $114 per share. Call options with one year to expiration and an exercise price of $105 are available. The risk-free rate is 7.5% investor A buys one share investor b buy one option and invest the present value of the exercise price in a risk free asset
What is the most the option could sell for today? what is the least the option could see for today?
is the option certain or uncertain to finish in the money?
What will be the investor A pay off in one year
What will be the value of investor b option in one year?
What will be the investor b paid off in one
How much will investor b invest in a t-bill today?
what must be the value of the option today to prevent and arbitrage opportunity?
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Public Finance
Authors: Harvey Rosen, Ted Gayer
10th Global Edition
007715469X, 978-0077154691
