A one-year call option contract on Cheesy Poofs Co. stock sells for $1,170. In one year,...
A one-year call option contract on Cheesy Poofs Co. stock sells for $1,170. In one year, the stock will be worth $49 or $70 per share. The exercise price on the call option is $62. What is the current value of the stock if the risk-free rate is 3 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Homework Answers
Stock sales for =$1170
Shares per contract =100
Call value. =1170/100 =$11.70per share
Current stock value. =Delta * Call value *Amount borrowed
Delta = 70-49/70-62 = 21/8 = 2.625
Amount borrowed = 62/(1+3%) = 60.1942
Current stock value = 2.625 *11.70 +60.194
=30.7125+60.194 =$ 90.9065
Therefore the current stock value is $ 90.91
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