Question

Suppose a share of stock sells for $59. The risk-free rate is 7 percent, and the stock price in one year will be either $65 or $75. (Leave no cells blank - be certain to enter "0" wherever required.)

What is the value of a call option with an exercise price of $65?

Calculate the minimum return on the stock required to get the option in the money. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

with an exercise price of $65, the value of the call option is zero. As the exercise price is $65.

when, the stock price is $75, the valeu of the call option will be $10.

the minumim return on the stock to get the stock in the money is :$7.

the option will be in the money when the stock price > exercise price /strike price of the call option.

suppose the stock price is 66,then the option will be in the money , so the minimum return on the stock is ($66 - $59) = $7

and the value of the call option is $1. ($66 - $65).