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What is the current value of the call option

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Reference no: EM132727882

Problem - Lett Incorporated's stock price is now $50, but it is expected either to rise by a factor of 1.5 or to fall by a factor of 0.7 by the end of the year. There is a call option on Lett's stock with a strike price of $55 and an expiration date 1 year from now. What are the stock's possible prices at the end of the year? What is the call option's payoff if the stock price goes up? If the stock price goes down? If we sell 1 call option, how many shares of Lett's stock must we buy to create a riskless hedged portfolio consisting of the option position and the stock? What is the payoff of this portfolio? If the annual risk-free rate is 6%, then how much is the riskless portfolio worth today (assuming daily compounding)? What is the current value of the call option?

Reference no: EM132727882

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