Misuraca Enterprise's current stock price is $45 per share. Call
options for this stock exist that permit the holder to purchase one
share at an exercise price of $50. These options will expire at the
end of 1 year, at which time Misuraca's stock will be selling at
one of two prices, $35 or $55. The risk-free rate is 5.5%. As an
assistant to the firm's treasurer, you have been tasked to perform
the following tasks to arrive at the value of the firm's call
options.
a. Find the range of values for the ending stock price and the
call option at the option's expiration in 1 year.
b. Equalize the range of payoffs for the stock and the
option.
c. Create a riskless hedge investment. What is the value of the
portfolio in 1 year?
d. What is the cost of the stock in the riskless portfolio?
e. What is the present value of the riskless portfolio?
f. From your answers in part d and e, what is the value of the
firm's call option?
I appreciate the help. I am a bit behind. Thanks.
Misuraca Enterprise's current stock price is $45 per share. Call options for this stock exist that permit the holder to
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