### Option Pricing Problem**Scenario:**The common stock of the C.A.L.L. Corporation has been trading in a narrow range around $105 per share for several months. You believe it will remain in that range for the next 3 months. The price of a 3-month put option with an exercise price of $105 is $12.86.**Question:**a. If the risk-free interest rate is 5% per year, what must be the price of a 3-month call option on C.A.L.L. stock at an exercise price of $105 if it is at the money? (The stock pays no dividends.) **Instructions:** - Do not round intermediate calculations. - Round your answer to 2 decimal places.```plaintextPrice of a 3-month call option: ____________________```### ExplanationThis problem is seeking the price of a three-month call option given the specific conditions outlined. When determining the price of the call option, consider the principles of option pricing models such as the Black-Scholes model. You’ll use the provided data points to arrive at your answer. ### Options Trading ExerciseThis exercise focuses on the evaluation of options trading strategies and their potential outcomes.#### Question b-2:**What is the most money you can make on this position?** *(Do not round intermediate calculations. Round your answer to 2 decimal places.)***Answer:**- **Amount:** [Enter your calculated value]#### Question b-3:**How far can the stock price move in either direction before you lose money?** *(Do not round intermediate calculations. Round your answer to 2 decimal places.)***Answer:**- **Stock Price:** [Enter your calculated value]#### Question c:**How can you create a position involving a put, a call, and riskless lending that would have the same payoff structure as the stock at expiration?****What is the net cost of establishing that position now?** *(Enter the absolute value. Do not round intermediate calculations. Round your answers to 2 decimal places. Leave no cells blank - be certain to enter "0" wherever required.)***Answer:**- [Provide the solution and explanation of the strategy]**Note:**When answering these questions, ensure accuracy by not rounding any figures during intermediate steps. The final answers should be rounded to two decimal places as specified.

The common stock of the C.A.L.L. Corporation has been trading in a narrow range around $105 per share for months, and you believe it is going to stay in that range for the next 3 months. The price of a 3-month put option with an exercise price of $105 is $12.86. a. If the risk-free interest rate is 5% per year, what must be the price of a 3-month call option on C.A.L.L. stock at an exercise price of $105 if it is at the money? (The stock pays no dividends.) (Do not round intermediate calculations. Round your answer to 2 decimal places.) Price of a 3-month call option

The common stock of the C.A.L.L. Corporation has been trading in a narrow range around $105 per share for months, and you believe it is going to stay in that range for the next 3 months. The price of a 3-month put option with an exercise price of $105 is $12.86. a. If the risk-free interest rate is 5% per year, what must be the price of a 3-month call option on C.A.L.L. stock at an exercise price of $105 if it is at the money? (The stock pays no dividends.) (Do not round intermediate calculations. Round your answer to 2 decimal places.) Price of a 3-month call option

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section20.A: The Black-scholes Option Pricing Model

Problem 1P

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