You own one call option with an exercise price of $40 on Northwest Exporters stock. This stock is currently selling for $37.90 a share but is expected to increase to either $38 or $43 a share over
The next year. The risk-free rate of return is 4 percent and the inﬂation rate is 3.5 percent. What is
The current value of your option if it expires in one year?
A) $.41
B) $.82
C) $1.67
D) $2.10
E) $5.00

Question

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The Answer of You own one call option with an exercise price of $40 on Northwest Exporters stock. This stock is currently selling for $37.90 a share but is expected to increase to either $38 or $43 a share over
The next year. The risk-free rate of return is 4 percent and the inﬂation rate is 3.5 percent. What is
The current value of your option if it expires in one year?
A) $.41
B) $.82
C) $1.67
D) $2.10
E) $5.00

You Own One Call Option with an Exercise Price of $40