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Consider a forward start option which, 1year from today, will give its owner a 1-year European call option with a strike price equal to the
Consider a forward start option which, 1year from today, will give its owner a 1-year European call option with a strike price equal to the stock price at that time (i.e. at the money). You are given:
1. The European call option is on a stock that pays no dividends.
2. The stock's volatility is 30%.
3. The forward price for delivery of 1 share of the stock 1 year from today is 100.
4. The continuously compounded risk-free interest rate is 8%.
Determine the price today of the forward start option.
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