a. Use the Black-Scholes formula to find the value of the following call option. Note: Do not round intermediate calculations. Round your final answer to 2 decimal places. 1. Time to expiration 1 year. 2. Standard deviation 40% per year. 3. Exercise price $86. 4. Stock price $86. 5. Interest rate 4% (effective annual yield). b. Now recalculate the value of this call option, but use the following parameter values. Each change should be considered independently. Note: Do not round intermediate calculations. Round your final answers to 2 decimal places. 1. Time to expiration 2 years. 2. Standard deviation 50% per year. 3. Exercise price $96. 4. Stock price $96. 5. Interest rate 6%. c. In which case did increasing the value of the input not increase your calculation of option value? a. Call option value b-1. Call option value when time to expiration is 2 years. b-2. Call option value when standard deviation is 50% per year. b-3. Call option value when exercise price is $60. b-4. Call option value when stock price is $60. b-5. Call option value when interest rate is 6%. c. Fall in option value
a. Use the Black-Scholes formula to find the value of the following call option. Note: Do not round intermediate calculations. Round your final answer to 2 decimal places. 1. Time to expiration 1 year. 2. Standard deviation 40% per year. 3. Exercise price $86. 4. Stock price $86. 5. Interest rate 4% (effective annual yield). b. Now recalculate the value of this call option, but use the following parameter values. Each change should be considered independently. Note: Do not round intermediate calculations. Round your final answers to 2 decimal places. 1. Time to expiration 2 years. 2. Standard deviation 50% per year. 3. Exercise price $96. 4. Stock price $96. 5. Interest rate 6%. c. In which case did increasing the value of the input not increase your calculation of option value? a. Call option value b-1. Call option value when time to expiration is 2 years. b-2. Call option value when standard deviation is 50% per year. b-3. Call option value when exercise price is $60. b-4. Call option value when stock price is $60. b-5. Call option value when interest rate is 6%. c. Fall in option value
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:a. Use the Black-Scholes formula to find the value of the following call option.
Note: Do not round intermediate calculations. Round your final answer to 2 decimal places.
1. Time to expiration 1 year.
2. Standard deviation 40% per year.
3. Exercise price $86.
4. Stock price $86.
5. Interest rate 4% (effective annual yield).
b. Now recalculate the value of this call option, but use the following parameter values. Each change should be considered
independently.
Note: Do not round intermediate calculations. Round your final answers to 2 decimal places.
1. Time to expiration 2 years.
2. Standard deviation 50% per year.
3. Exercise price $96.
4. Stock price $96.
5. Interest rate 6%.
c. In which case did increasing the value of the input not increase your calculation of option value?
a. Call option value
b-1. Call option value when time to expiration is 2 years.
b-2. Call option value when standard deviation is 50% per year.
b-3. Call option value when exercise price is $60.
b-4. Call option value when stock price is $60.
b-5. Call option value when interest rate is 6%.
c. Fall in option value
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