| Question | An option is the right to buy or sell an asset (stocks, bonds, foreign exchange, land, etc.) for a specified price on or before a specific date. A call option is the right to buy the stock, while a put option is the right to sell the stock. Suppose you have a call option to buy 100 shares in a highly volatile stock, Fantasia.com, at any time in the next 3 months at $10 per share. Fantasia currently sells at $9 per share. a. Explain why the value of the option is more than $1 per share. b. Suppose the option were to expire tomorrow and the price of Fantasia.com had an even chance of rising $5 or falling $5 before then. What would be the value of the option today? |
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| Subject | business economics |
