# Question: The price of Ervin Corp stock will be either 74

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?

## Answer to relevant Questions

The price of Tara, Inc., stock will be either $50 or $70 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 Tara stock is $62. ...You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold for $1.1 million. Over the past five years, the price of land in the area has increased 12 percent per year, with an annual ...Frostbite Thermalwear has a zero coupon bond issue outstanding with a face value of $30,000 that matures in one year. The current market value of the firm’s assets is $36,400. The standard deviation of the return on the ...Use the Black–Scholes model for pricing a call, put–call parity, and the previous question to show that the Black–Scholes model for directly pricing a put can be written as follows: P = E × e−Rt × N(−d2) − S × ...You are discussing real options with a colleague. During the discussion, the colleague states, “Real option analysis makes no sense because it says that a real option on a risky venture is worth more than a real option on ...Post your question