1. Peter has been granted options on 50,000 shares. The stock is currently trading at $17 a share and the options are at the money. The volatility of the stock returns averages 16 percent. The options mature in 2 years and the risk-free rate is 3.45 percent. N(d1) is .662055 and N(d2) is .576052. Given this information, what is the value of a call option on one share of this stock?
$2.11
$1.70
$2.21
$1.89
$2.28
2. Under risk neutrality, the expected return on an asset will equal:
the market risk premium.
the risk-free rate of interest.
the market rate of return.
zero.
the asset beta times the market risk premium.