You currently own a one-year call option on Way-One.The current share price is €26.50 and the risk-free rate of return is 4%.Your option has a strike price of €20 and you assume that it will ﬁnish
In the money.What is the current value of your call option?

Question

Quizplus · Accepted Answer

The value of a call option is calculated as the current stock price minus the present value of the strike price. The present value of the strike price is calculated using the formula: Strike Price / (1 + risk-free rate)^time. Here, €20 / (1 + 0.04)^1 = €19.23. Therefore, the call option value is €26.50 - €19.23 = €7.27.

You Currently Own a One-Year Call Option on Way-One