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Calculating Option Values

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The price of stock will be either $60 or $80 at the end of year. Call options are available with one year to expiration. T-bills currently yield 5 percent.

Suppose the current price of stock is $70. What is the value of the call option of the exercise price is $45 per share?

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Solution Summary

The expert calculates the option values for exercise price and shares.

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