Question
It is your first day of work on the trading desk. You need to analyze a five-month call option with an exercise price of $25,
It is your first day of work on the trading desk. You need to analyze a five-month call option with an exercise price of $25, and you build a model in which cell D6 forecasts the price of the stock at maturity. The value of the option in five months is $0 if the stock price is less than or equal to the exercise price. If not zero, the value of the option is the stock price in five months less the exercise price. Which of the following formulas will correctly value the call option?
I. IF(D6>25,25-D6,0)
II. IF(D6>25,D6-25,0)
III. MAX(D6,0)
IV. MIN(0,25-D6)
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