What is the premium of the call option? (a) $ 8.00 (b) $ 9.09 (c) $12.00 (d) $50

Question

What is the premium of the call option? (a) $ 8.00 (b) $ 9.09 (c) $12.00 (d) $50.18 (e) I choose not to answer. The current price of an Icebear share is $100, and three months from now, it can be either $90 or $120. You buy a (European) call option on an Icebear share, with maturity three months from now and an exercise price of $108. The quarterly risk-free interest rate is 5%. If at maturity the market price of an Icebear share is $120, what is your quarterly rate of return on this investment? 10%. 40%. 1 10%. (d)-100%. (a) (e) I choose not to answer. 12.

Explanation / Answer

Mkt. Price Strike Price Payoff 120 108 12 (120-108) 100 90 %return on Investment 110% (1+12/120)*100

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