The price of Tara, Inc., stock will be either $82 or $104 at the end of...

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Finance

The price of Tara, Inc., stock will be either $82 or $104 at theend of the year. Call options are available with one year toexpiration. T-bills currently yield 3 percent.

a.
Suppose the current price of the company's stock is $93. What isthe value of the call option if the exercise price is $78 pershare? (Do not round intermediate calculations and roundyour answer to 2 decimal places, e.g., 32.16.)

  Call value $

b.
Suppose the current price of the company's stock is $93. What isthe value of the call option if the exercise price is $88 pershare? (Do not round intermediate calculations and roundyour answer to 2 decimal places, e.g., 32.16.)

  Call value $

Answer & Explanation Solved by verified expert

4.2 Ratings (687 Votes)

a C0 S0 PVX 93 78103 93 7573 1727 b Step 1 Calculate the option value at expiration based upon your assumption of a 50 chance of increasing to 104 and a 50 See Answer

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The price of Tara, Inc., stock will be either $82 or $104 at theend of the year. Call options are available with one year toexpiration. T-bills currently yield 3 percent. a.Suppose the current price of the company's stock is $93. What isthe value of the call option if the exercise price is $78 pershare? (Do not round intermediate calculations and roundyour answer to 2 decimal places, e.g., 32.16.) Call value$ b.Suppose the current price of the company's stock is $93. What isthe value of the call option if the exercise price is $88 pershare? (Do not round intermediate calculations and roundyour answer to 2 decimal places, e.g., 32.16.) Call value$