Question
You have a 1-year call option for which the underlying asset is one barrel of oil. The exercise price is $45 per barrel. Suppose that
You have a 1-year call option for which the underlying asset is one barrel of oil. The exercise price is $45 per barrel. Suppose that investors are convinced that the price of oil one year from now will be either $30 or $55 per barrel. Annual risk free rate is 5% and the current oil price per barrel is $40. What is the call option price?
| a. | $12.56 | |
| b. | $6.86 | |
| c. | $4.57 | |
| d. | $3.25 | |
| e. | $9.52 |
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Cornerstones of Financial and Managerial Accounting
Authors: Rich, Jeff Jones, Dan Heitger, Maryanne Mowen, Don Hansen
2nd edition
978-1111879044
