Question
Ken is interested in buying a European call option written on Southeastern Airlines, Inc., a non-dividend-paying common stock, with a strike price of $90 and
Ken is interested in buying a European call option written on Southeastern Airlines, Inc., a non-dividend-paying common stock, with a strike price of $90 and one year until expiration. Currently, the company's stock sells for $89 per share. Ken knows that, in one year,the company's stock will be trading at either $110 per share or $75 per share. Ken is able to borrow and lend at the risk-free EAR of 4.5 percent.
a.What should the call option sell for today?(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b.What is the delta of the option?(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
c.How much would Ken have to borrow for a synthetic call to be created?(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
d.How much does the synthetic call option cost?(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
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