You are given the following information of a call option on


You are given the following information of a call option on a stock:

• The expected return on the stock is 30% compounded continuously.

• The continuously compounded risk-free interest rate is 2%.

• The call elasticity is 2.3.

(a) Find the risk premium on the option.

(b) Find the expected annual continuously compounded return on the call option.

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Financial Management: You are given the following information of a call option on
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