Assume a stock has a value of $100. The stock is expected to pay a dividend of $2 per share at year-end. An at-the-money European- style put option with one-year maturity sells for $7. If the annual interest rate is 5%, what must be the price of a 1-year at-the-money European call option on the stock? (Round your answer to 2 decimal places.)
Assume a stock has a value of $100. The stock is expected to pay a dividend of $2 per share at year-end. An at-the-money European- style put option with one-year maturity sells for $7. If the annual interest rate is 5%, what must be the price of a 1-year at-the-money European call option on the stock? (Round your answer to 2 decimal places.)
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
Problem 1PS
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Would like an explanation of the correct steps and formulas, I'm unsure of the final answer I found($9.85).
Thank you in advance!
Transcribed Image Text:Assume a stock has a value of $100. The stock is expected to pay a dividend of $2 per share at year-end. An at-the-money European-style put option with one-year maturity sells for $7. If the annual interest rate is 5%, what must be the price of a 1-year at-the-money European call option on the stock? **(Round your answer to 2 decimal places.)**
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