What is the current value of a six-month call option with an exercise price of $12? The six-month risk-free interest rate is 5% per six-month period.[Use the risk-neutral valuation method.]
A)$9.78
B)$10.28
C)$16.88
D)$13.33

Question

Quizplus · Accepted Answer

The correct answer is A because the current value of a six-month call option with an exercise price of $12 and a six-month risk-free interest rate of 5% per six-month period is $9.78. This can be calculated using the risk-neutral valuation method, which assumes that the expected return on the option is equal to the risk-free rate.

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