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You are a trader and you are enticed by shares of BB that currently cost $52....

You are a trader and you are enticed by shares of BB that currently cost $52. There are two choices you can do, either you buy the BB shares at $52 or do the alternative and purchase European call options on BB shares. The premium on the option for BB shares is five dollars the time before the contract expires is 3 months and the exercise price of the contract is fifty dollars. The volatility is thirty percent per annum, the risk-free rate is twelve percent per annum. Also, there is no dividend being paid from the BB shares.

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Expert Solution

Buy call option as it is underpriced. Intrinsic value is 5.06 hence it is selling cheap at 5

jeff jeffy answered 2 years ago
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