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The price of Cilantro, Inc., stock will be either $70 or $92 at the end of the year. Call options are available with one year to expiration. T-bills currently yield 5 percent. Suppose the current price of the company's stock is $81. What is the value of the call option if the exercise price is $66 per share?

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abiolataiwo2015

Answer:

$18.14

Explanation:

Value of the call = Stock price - Present value of the strike (exercise price)

Stock price = $81

Present value of the strike=66

T-bills yield 5 percent.

$81 – $66/1.05

=$81-62.8571

= $18.14

Therefore tthe value of the call option if the exercise price is $66 per share will be $18.14

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