1. Andover's stock is currently selling for $40.00 a share but is expected to either decrease to $36 or increase to $44 a share over the next year. The risk-free rate is 4 percent. What is the current value of a 1-year call option with an exercise price of $42? $1.18 $1.27 $1.35 $1.46 $1.59
2. The 1-year $42 options on Lowell Star stock are priced at $1.43 for the call and $.57 for the put. The annual risk-free rate is 3.5 percent. What is the per share price of the underlying stock? $45.73 $41.44 $38.42 $35.09 $32.74
3. A callable bond can be called at 15% above par. The coupon rate on the bond is 8% and the bond has 10 years to maturity. Suppose the bond pays coupons SEMI-ANNUALLY. Calculate the yield-to-call if the bond has 4 years to the nearest call date and is currently selling for $1,050.