4. The current spot price of a stock is $34, the expected rate of return of the stock is 8%, and the volatility of the stock is 20%. The risk-free rate is 3% for all times. Assume the stock pays a dividend of 25 cents in 2 months. Compute the price of a straddle containing a call option and a put option on the stock with strike price $35 expiring in 4 months.

a. 1.928; b. 1.276; c. 3.20 ; d. none of above

Answer rating: 100% (QA)

option B is correct Price of opt... View the full answer