Learn Corp. (Ticker: LC), an education technology company, is considered to be one of the least risky companies in the education sector. Investors trade call options for Learn Corp., whose stock is currently trading at $42.00. Suppose you are interested in buying a call option with a strike price of $58.80 that expires in 6 months. (Assume that you get the option for free!) Based on speculations and probability analysis, you compute and collect the following information for your price analysis of the option:
• For LC’s options, time until expiration (t) is taken as 0.50 year (6 months/12 months).
• LC’s stock could go up by a factor of 2.00 (u).
• LC’s stock could decline by a factor of 0.85 (d).
At this time, LC’s stock price is______ Therefore, if the option and if you exercised the option, your payoff would be ______exercise the option. is out-of-the-money, you ______exercise the option.
Calculate the ending stock price of Learn Corp. for both possible outcomes and the payoff in both situations.
Price Increases Price Decreases
Stock price P(u) Stock price P(d) Payoff Cu Payoff Cd
