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9. 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

9. 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

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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9. 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
Transcribed Image Text:9. 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
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