Assume the risk-free rate is 3 and will remain so for all, Finance Basics

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Assume the risk-free rate is 3 and will remain so for all

Question: Assume the risk-free rate is 3% and will remain so for all time. Face- book (FB) currently trades at $120. You purchase a 1-year European $5-strike call options on a short futures contract one share of FB. The futures delivery date is 2.5 years from now and the delivery price is $130. Compute the range of price of FB in one year from now that will make you want to exercise your option.

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Finance Basics: Assume the risk-free rate is 3 and will remain so for all

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Finance Basics: Assume the risk-free rate is 3 and will remain so for all

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