Question

Introduction to option pricing models Aa Aa Wernham Hogg Inc. stock is currently selling for $84.56 per share. Options permit the holder to buy one share at an exercise price of $75.00. These options will expire at the end of one year. When the option expires, Wernham Hogg Inc.'s stock will either be selling for $90.00 or $65.00. What is the range of Wernham Hogg Inc.'s ending stock prices?

a. $10.00
b. $15.00
c. $40.00
d. $30.00
e. $25.00

Answer 1

The range of Wernham Hogg Inc.'s ending stock prices is calculated by subtracting the lower potential future stock price ($65.00) from the higher potential future stock price ($90.00), resulting in a range of $25.00. The correct answer is option e. $25.00.

Step-by-step explanation:

The question asks about determining the range of Wernham Hogg Inc.'s ending stock prices given the possible future stock prices and the exercise price of an option. The ending stock prices are defined by the difference in the possible future stock prices. Wernham Hogg Inc.'s stock could either end up at $90.00 or at $65.00. The range is the difference between these two potential outcomes.

The range is calculated as follows: $90.00 - $65.00 = $25.00. Therefore, the correct answer is e. $25.00.