A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing

by Burton G. Malkiel

ILLUSTRATION OF THE DETERMINATION OF THE VALUE OF A CALL OPTION Amount Invested (1+ Risk-Free Interest Rate) = Certain Payoff [Hedge Ratio (Initial Stock Price) – C](1+ Interest Rate) = Certain Payoff [⅔(100) – C](1+.10) = 50 (66.67 – C)(1.1) = 50 C = 21.22