This morning, you purchased a call option on School house Supply Co. stock that expires in one year. The exercise price is $37.50. The current price of the stock is $37.60 and the risk-free rate of return is 3.1 percent. Assume the option will finish in the money. What is the current value of the call option?

The current value of the call option is $ 1.2275

Explanation:

According to the given data, we have the following:

Current stock price=$37.60

exercise price=$37.50

the risk-free rate of return=3.1%

Therefore, in order to calculate the current value of the call option we have to use the following formula:

Value of Call = Current Stock Price - [ Exercise Price / (1 + Risk free rate) ]

Value of Call = $ 37.60 - [ $ 37.50 / (1+0.031)) ]

Value of Call = $ 37.60 - 36.37245

Value of Call = $ 1.2275

The current value of the call option is $ 1.2275