1a. A stock trades for $42 per share. A call option on that stock has a strike price of $54 and an expiration date six months in the future. The volatility of the stock's returns is 41%, and the risk- free rate is 5%. What is the Black and Scholes value of
1a. A stock trades for $42 per share. A call option on that stock has a strike price of $54 and an expiration date six months in the future. The volatility of the stock's returns is 41%, and the risk- free rate is 5%. What is the Black and Scholes value of
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
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Transcribed Image Text:1a. A stock trades for $42 per share. A
call option on that stock has a strike
price of $54 and an expiration date six
months in the future. The volatility of
the stock's returns is 41%, and the risk-
free rate is 5%.
What is the Black and Scholes value of
this option?
1b. A stock trades for $43 per share. A
call option on that stock has a strike
price of $54 and an expiration date
three months in the future. When the
volatility of the stock's returns is 30%,
the Black and Scholes value of the
option is $3.82. Now assume, the
volatility of the stock's returns is 55%,
and the risk-free rate is 3%.
The Black and Scholes value of this call
option is
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