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You observe a six-month European call option with an exercise price of $85 on a stock that is currently trading for $87 selling for $7.40.
You observe a six-month European call option with an exercise price of $85 on a stock that is currently trading for $87 selling for $7.40. The current risk-free rate is 2%. If you think that the actual volatility of the option is 33%, is the option overvalued, undervalued, or appropriately valued?
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