Suppose ACC's Stock Price Is Currently $25

Multiple Choice

Suppose ACC's stock price is currently $25. In the next six months it will either fall to $15 or rise to $40. What is the current value of a six-month call option with an exercise price of $20? The six-month risk-free interest rate is 5 percent per six-month period. (Use the replicating portfolio method.)

A) $20.00
B) $8.57
C) $9.52
D) $13.10