Define the current value of an option to buy one share

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Reference no: EM1350443

The current price of a share of Juice stock is $40. While the outlook for Juice stock is uncertain, at the end of the year, the price of one share of Juice stock will either increase to $80 or drop to $20. Assume the risk-free rate of interest is 10 percent.

Required:

Determine the current value of an option to buy one share of Juice stock one year from now at a price of $60. Use "simple" interest in the discounting process.

Reference no: EM1350443

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