Calculate the price of a call option

Reference no: EM132949267

Question

Main Street Plc. is a stock which is responsible for the project management and processes of the major carriageway/road projects in the United Kingdom. It has previously maintained a dividend of around £0.10 per share, for the last 5 years at least. The firm has received a contract to expand its services to the French government in selected areas, in which case, depending on its management of these projects the firm's profitability is expected to increase in future periods

MS Plc. current share price is £7.80. The outcomes of the contracts and the managements ability to manage current assets, means that there is a standard expectation of 1-year volatility in share price of 24%. The risk-free rate of 2%.

An investor who has been observing the share price and profitability of MS Plc. feels, [without definite knowledge] that the profitability of MS Plc. will increase in future, and therefore would like to own the asset in future, has been considering their investment via options.

Can you please Calculate the price/premium of a CALL option with a STRIKE of £7.85 for 1 year in the future?

Given the information you have been provided in the scenario, which option should the investor BUY, fully explaining your rationale.?

Reference no: EM132949267

Questions Cloud

Explain technological and policy contexts : Describe risk factors which may impact on the Hungry jack's ability to achieve its objectives and how they affect the organization.

What is free cash flow for fiscal year ending : What is Free Cash Flow for fiscal year ending 2020? Assume Free Cash Flow will stay constant forever (in perpetuity) and an investor's required rate of return

How much should the of deposit in a lump-sum amount : John and Betty Shelton would like to save, How much should the of deposit in a lump-sum amount into a college fund today to fully fund the education?

What statistical test should one run to test the hypothesis : How would one state the enquiry as testable hypothesis (null and alternative) what statistical test should one run to test this hypothesis?

Calculate the price of a call option : Calculate the price/premium of a CALL option with a STRIKE of £7.85 for 1 year in the future and which option should the investor BUY, fully explaining

Calculate their return on assets and equity : Given the following information for Victory Stables, calculate their return on assets and equity and comment on the use of these ratios

How the event should be disclosed in face : A corporation with a balance sheet date of December 31. How the event should be disclosed in face and note of the December 31, 2021 financial statements.

Compute the equivalent units of production for materials : Compute the equivalent units of production for materials using the FIFO method and Compute the equivalent units of production for conversion

Describe key investment method that organization can deploy : Describe three key investment methods that the organization can deploy as part of cash utilization to optimize returns. Provide qualitative analysis to justify

User Account

All Pages