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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.)

Respuesta :

Karabo99

Answer:

The current value of the stock if the risk-free rate is 3 percent $78.29

Explanation:

stock value

= [(max.V - min.pr)/(max.V - exer.pr)*call price] + min.pr/(1+RFr)

=  [(max.V - min.pr)/(max.V - exer.pr)*stock price/number of contracts] + min.pr/(1+RFr)

= [(70 - 49)/(70 - 62)*1170/100] + 49/(1 + 3%)

= $78.29

Therefore, The current value of the stock if the risk-free rate is 3 percent $78.29

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