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Discuss which factors determine the value of a call option

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Question - As an expert in pricing financial derivatives, your friend, John, approached you seeking a professional advice on the fair price of the European style call and put option on the FTSE 100 index. The following data relate to the FTSE 100 index.

Current price 7125

Dividend Yield 2.95%

Volatility 13.25%

The risk-free rate of interest is 1%.

Required - Critically discuss which factors determine the value of a call option and how.

Reference no: EM133039530

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