Suppose a european call option has an exercise price of 100, Ask an Expert

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Suppose a European call option has an exercise price of $100 and the underlying stock has a price of $100. The stock will pay no dividends over the next year. The option expires in 1 year and the continuously compounded interest rate is 6%.

(a) What is the intrinsic value of this option?

(b) What will the option be worth on expiration if the stock price in 1 year is $110? What if the stock price is $90?

(c) Will the value of the option be larger or smaller if the volatility of the underlying asset is higher than otherwise?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92352530

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