CFAI 2013 MOCK EXAM - Q 10

CFA Level II
#1

Anyone have any thoughts on why this question the calculation of the call value is actually computed based off the current stock price, and not the price of the underlying asset in 2 years? So instead of computing call value based on the 32mm EUR figure, it uses the 30mm EUR figure, which seems odd. I would easily argue that the exercise price, X, should be the 32mm figure because that’s what the actual price is in 2 years that he can purchase the asset.

thanks!

#2

The 32m figure is what it will cost you to purchase the other half of the project. This number won’t change. You need to know what the other half of the project is worth, 30m today but that figure is going to change according to the probabilities in the question.