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The stock of Valero (Ticker: VLO) closed on December 5th at $45.51/share. The risk-free rate is 1% (continuously-compounded). A 9-month European call option on VLO at a strike price of K=45 is priced at $7.15/share. Break down the value of the call into the intrinsic value, the time value, and the insurance value. Ignore VLO’s dividend.

Financial Management, Finance

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