Misuraca Enterprises current stock price is $45 per share. Call options for this stock exist that permit

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Misuraca Enterprise’s current stock price is $45 per share. Call options for this stock exist that permit the holder to purchase one share at an exercise price of $50.These options will expire at the end of 1 year, at which time Misuraca’s stock will be selling at one of two prices, $35 or $55. The risk-free rate is 5.5%. As an assistant to the firm’s treasurer, you have been asked to perform the following tasks to arrive at the value of the firm’s call options.a. Find the range of values for the ending stock price and the call option at the option’s expiration in 1 year.b. Equalize the range of payoffs for the stock and the option.c. Create a risk less hedged investment. What is the value of the portfolio in 1 year?d. What is the cost of the stock in the risk less portfolio?e. What is the present value of the risk less portfolio?f. From your answers in parts d and e, what is the value of the firm’s call option?

Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...
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Fundamentals of Financial Management

ISBN: 978-1337395250

15th edition

Authors: Eugene F. Brigham, Joel F. Houston

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