# Question

The price of Ervin Corp. stock will be either $74 or $96 at the end of the year. Call options are available with one year to expiration. T-bills currently yield 5 percent.

a. Suppose the current price of Ervin stock is $80. What is the value of the call option if the exercise price is $70 per share?

b. Suppose the exercise price is $90 in part (a). What is the value of the call option now?

a. Suppose the current price of Ervin stock is $80. What is the value of the call option if the exercise price is $70 per share?

b. Suppose the exercise price is $90 in part (a). What is the value of the call option now?

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