What is the current value of a six-month call option with an exercise price of $15? The six-month risk-free interest rate is 5% per six-month period.[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 that mimics the payoff of the option. The value of the call option is calculated using the present value of the expected payoff, discounted at the risk-free rate. 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