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Value of an option

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You are considering the purchase of a call option on Priceless Packing Inc. Priceless has a current stock price of $40.00 per share with an annual volatility of 45 percent. The exercise price of the option is $38.00 and the riskless rate of interest is 6 percent. If this stock pays no dividends and the option matures in six months, its value is:

a. $1.88
b. $2.00
c. $6.58
d. $10.45
e. none of the above

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The solution determines the value of an option.

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