The underlying stock for a European exchange option has S = $27.15, div = 2.0%, and
? = 0.18. The strike stock has S = $30.00, div = 0.0%, and ? = 0.22. The two stocks have a correlation coefficient of 0.73.
If the exchange option expires in 2 years, what is the price of the call using a Black-Scholes approach?
A) $0.88
B) $0.98
C) $1.09
D) $1.19
C
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