The price of Build A Fire Corp. stock will be either $61 or $86 at the...

70.2K

Verified Solution

Question

Finance

The price of Build A Fire Corp. stock will be either $61 or $86at the end of the year. Call options are available with one year toexpiration. T-bills currently yield 4 percent. a. Suppose thecurrent price of the company's stock is $70. What is the value ofthe call option if the exercise price is $60 per share? (Do notround intermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.) Value of the call option $ b. Suppose theexercise price is $80 and the current price of the company's stockis $70. What is the value of the call option now? (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.) Value of the call option $

Answer & Explanation Solved by verified expert

4.4 Ratings (739 Votes)

a Upmove U High pricecurrent price867012286 Down move D Low pricecurrent price617008714 Risk neutral probability for up move q erisk free ratetimeDUD See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

The price of Build A Fire Corp. stock will be either $61 or $86at the end of the year. Call options are available with one year toexpiration. T-bills currently yield 4 percent. a. Suppose thecurrent price of the company's stock is $70. What is the value ofthe call option if the exercise price is $60 per share? (Do notround intermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.) Value of the call option $ b. Suppose theexercise price is $80 and the current price of the company's stockis $70. What is the value of the call option now? (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.) Value of the call option $