What is the current value of a six-month call option with an exercise price of $15? The six-month risk-free interest rate (periodic rate) is 5%. [Use the replicating portfolio method]
A) $8.73
B) $10.28
C) $16.88
D) $13.33

Question

Quizplus · Accepted Answer

The replicating portfolio method involves creating a portfolio of the underlying asset and risk-free bonds that mimics the payoff of the call option. The value of the call option is the cost of this portfolio. Given the exercise price and interest rate, the calculation results in a value of $8.73.

What Is the Current Value of a Six-Month Call Option