The common stock of New Horizon Homes is selling for $68.70 a share. U.S. Treasury bills are currently yielding 4.65 percent. What is the current value of a one-year call option on this stock if the exercise price is $67.50 and you assume the option will finish in the money?

Question

Quizplus · Accepted Answer

The correct answer is D because the current value of a one-year call option on this stock is $4.20. This is because the stock is currently selling for $68.70, which is above the exercise price of $67.50. The option will finish in the money, which means that the holder of the option will be able to exercise it and buy the stock at a price below the market price. The value of the option is the difference between the market price of the stock and the exercise price, which is $4.20.

The Common Stock of New Horizon Homes Is Selling for $68.70