Question: Consider a forward start option which, 1year from today, will give its owner a 1-year European call option with a strike price equal to the

Consider a forward start option which, 1year from today, will give its owner a 1-year European call option with a strike price equal to the stock price at that time (i.e. at the money). You are given:

1. The European call option is on a stock that pays no dividends.

2. The stock's volatility is 30%.

3. The forward price for delivery of 1 share of the stock 1 year from today is 100.

4. The continuously compounded risk-free interest rate is 8%.

Determine the price today of the forward start option.

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