The price of Swearengen, Inc., stock will be either $75 or $95 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 the company's stock is $85. What is the value of the call option if the exercise price is $65 per share?
b. Suppose the exercise price is $70 in part (a). What is the value of the call option now?