Question: The price of Ervin Corp stock will be either 65

The price of Ervin Corp. stock will be either $65 or $85 at the end of the year. Call options are available with one year to expiration. T-bills currently yield 6 percent.
a. Suppose the current price of Ervin stock is $70. What is the value of the call option if the exercise price is $60 per share?
b. Suppose the exercise price is $80 in (a). What is the value of the call option now?

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  • CreatedJune 17, 2015
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