Question
You are considering a position as the director of finance in a company listed on the Lusaka Securities Exchange Plc. Since the firm is still
You are considering a position as the director of finance in a company listed on the Lusaka Securities Exchange Plc. Since the firm is still new, the salary is not that great but your package will include call options on 5,000 shares of the company. The shares are currently selling for K5 per share. The call options granted to you if you accept the job have an exercise price of K5 and expire in three years. The call options cannot be exercised before maturity. The stock volatility is 28% and the three-year risk free rate is 3.6%. A call with a strike price of K30 costs K3. Required:Calculate the value of the call option.
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