Ken is interested in buying a European call option written on Southeastern Airlines, Incorporated, a non-dividend-paying common
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Question:
Ken is interested in buying a European call option written on Southeastern Airlines, Incorporated, a non-dividend-paying common stock, with a strike price of $90 and one year until expiration. Currently, the company's stock sells for $90 per share. Ken knows that, in one year, the company's stock will be trading at either $112 per share or $76 per share. Ken is able to borrow and lend at the risk-free EAR of 5 percent. |
a. | What should the call option sell for today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
b. | What is the delta of the option? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., .16.) |
c. | How much would Ken have to borrow to create a synthetic call? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
d. | How much does the synthetic call option cost? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
Related Book For
Corporate Finance
ISBN: 9781265533199
13th International Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
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