Two European call options with a strike price of ($50) are written on two different stocks. Suppose

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Two European call options with a strike price of \($50\) are written on two different stocks. Suppose that tomorrow, the low-volatility stock will have a price of \($50\) for certain. The high-volatility stock will be worth either \($60\) or \($40,\) with each price having equal probability. If the exercise date of both options is tomorrow, which option will be worth more today?

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Fundamentals Of Corporate Finance

ISBN: 9780137852581

6th Edition

Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford

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