You own one call option with an exercise price of $30 on Nadia Interiors stock. This stock is currently selling for $27.80 a share but is expected to increase to either $28 or $34 a share over the next year. The risk-free rate of return is 5% and the inflation rate is 3%. What is the current value of your option if it expires in one year?
A) $0.76
B) $0.79
C) $0.89
D) $0.92
E) $0.95

Question

Quizplus · Accepted Answer

Using the Black-Scholes formula with the given inputs, the option value is calculated to be $0.76.

You Own One Call Option with an Exercise Price of $30