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Nostrana [21]
2 years ago
7

The stock price of Heavy Metal (HM) changes only once a month: Either it goes up by 20% or it falls by 16.7%. Its price now is $

40. The interest rate is 1% per month. What is the value of a one-month call option with an exercise price of $40
Business
1 answer:
ziro4ka [17]2 years ago
3 0

The value of a one-month call option with an exercise price of $40 is $3.7.

<h3>How to calculate the value?</h3>

From the information given, the stock price of Heavy Metal (HM) changes only once a month as it goes up by 20% or it falls by 16.7% and the price now is $40.

The value of the call option will be:

= (p × 20) + (1 - p) - 16.7 = 1

where p = 0.48

= (0.48 × 8) + (0.52 × 0) / 1.01

= 3.8

Learn more about stock on:

brainly.com/question/25300925

#SPJ1

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