Suppose Carol's stock price is currently $20. In the next six months it will either fall to $10 or rise to $40. What is the current value of a six-month call option with an exercise price of $15? The six-month risk-free interest rate is 5 percent per six-month period. (Use the replicating portfolio method.)
A. $13.33
B. $16.88
C. $10.28
D. $8.73
Answer: D
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