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Problem 24-4 Calculating Option Values The price of Chive Corp. stock will be either $102 or...

Problem 24-4 Calculating Option Values

The price of Chive Corp. stock will be either $102 or $132 at the end of the year. Call options are available with one year to expiration. T-bills currently yield 4 percent.

a.

Suppose the current price of the company's stock is $110. What is the value of the call option if the exercise price is $90 per share? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

b. Suppose the exercise price is $125 and the current price of the company's stock is $110. What is the value of the call option now? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Solutions

Expert Solution

Solution a>

The value of the call is $23.529

The solved excel sheet along with the formula sheet is given below.

The formula used are:

Solution b>

The value of the call is $2.8

The solved excel sheet along with the formula sheet is given below.

The formula used are:

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