Problem $16-01$

Problem $16-01$

You work on a proprietary trading desk of a large investment bank, and you have been asked for a quote on the sale of a call option with a strike price of $$54$ and one year of expiration. The call option would be written on a stock that does not pay a dividend. From your analysis, you expect that the stock will either increase to $$74$ or decrease to $$38$ over the next year. The current price of the underlying stock is $$54,$ and the risk$-$free interest rate is $6\%$ per annum. What is this fair market value for the call option under these conditions? Do not round intermediate calculations. Round your answer to the nearest cent.

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