Answer:
The value of the call option today is $7.73
Explanation:
The value or price of the call option under the two state model is calculated based on the assumption that there is no opportunity for arbitrage profit. The value of call option will be based on the return in case the call option is exercised and the probability of earning that return.
The strike price is $105
The return if price goes to $122 and option is exercised is 122 - 105 = $17
The return if the price goes down to $88 will be 0 as the call option will not be exercised.
Thus, the expected return is = 0.5 * 17 + 0.5 * 0 = $8.5
This return will be earned after 1 year. To calculate the value of the call option today, we need to discount this return to present value using the risk free rate.
V0 or value today = 8.5 / (1+0.1) = $7.727 rounded off to $7.73
Answer:
D
Explanation:
Investment is not defined until it is current and shown
Answer:
The correct answer is letter "A": paid and recorded in an asset account before they are used or consumed.
Explanation:
A Prepaid Expense is an asset on the Balance Sheet. These expenses are paid in advance in full for goods that have not been received yet or services that have not been rendered still. For accounting purposes, the amount reported as a current asset decreases every month until the total amount of the prepaid expense is used up.
A. Lowering the interest on reserve rate.
Expansionary monetary policy increases money supply by lowering interest rates
