A stock has a current price of $116. An option on this stock that expires in six months has an exercise price of $115. The stock will pay a dividend of $5 in three months. Assume an annualized volatility of 30% and a continuously compounded risk-free rate of 5% per annum. Use the Black-Sholes-Merton model to price this option. (In all your calculations, round the numbers to 4 decimal places.) 1) Suppose the option is a European put. Calculate the value of the put. 2) Suppose this option is an American call. Use Black's approximation to calculate the value of this call.
A stock has a current price of $116. An option on this stock that expires in six months has an exercise price of $115. The stock will pay a dividend of $5 in three months. Assume an annualized volatility of 30% and a continuously compounded risk-free rate of 5% per annum. Use the Black-Sholes-Merton model to price this option. (In all your calculations, round the numbers to 4 decimal places.) 1) Suppose the option is a European put. Calculate the value of the put. 2) Suppose this option is an American call. Use Black's approximation to calculate the value of this call.
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
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Transcribed Image Text:A stock has a current price of $116. An option on this stock that expires in six months
has an exercise price of $115. The stock will pay a dividend of $5 in three months.
Assume an annualized volatility of 30% and a continuously compounded risk-free
rate of 5% per annum. Use the Black-Sholes-Merton model to price this option.
(In all your calculations, round the numbers to 4 decimal places.)
1) Suppose the option is a European put. Calculate the value of the put.
$
2) Suppose this option is an American call. Use Black's approximation to calculate the
value of this call.
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