Assume the following inputs for a call option: (1) current stock price is $31, (2) strike price is $35, (3) time to expiration is 2 months, (4) annualized risk-free rate is 3%, and (5) variance of stock return is 0.25. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. Use the Black-Scholes model to find the price for the call option. Do not round intermediate calculations. Round your answer to the nearest cent
Assume the following inputs for a call option: (1) current stock price is $31, (2) strike price is $35, (3) time to expiration is 2 months, (4) annualized risk-free rate is 3%, and (5) variance of stock return is 0.25. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. Use the Black-Scholes model to find the price for the call option. Do not round intermediate calculations. Round your answer to the nearest cent
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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Assume the following inputs for a call option: (1) current stock price is $31, (2) strike price is $35, (3) time to expiration is 2 months, (4) annualized risk-free rate is 3%, and (5) variance of stock return is 0.25. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below.
Use the Black-Scholes model to find the price for the call option. Do not round intermediate calculations. Round your answer to the nearest cent.
Transcribed Image Text:The image displays a spreadsheet related to the Black-Scholes Model, typically used for option pricing. Below is a transcription and explanation of the components in the spreadsheet:
**Spreadsheet: Black-Scholes Model**
- **Current price of underlying stock, P:** $31.00
- **Strike price of the option, X:** $35.00
- **Number of months until expiration:** 2 months
- **Time until the option expires, t:** (This cell is highlighted in blue but no value is provided)
- **Risk-free rate, \( r_{RF} \):** 3.00%
- **Variance, \( \sigma^2 \):** 0.25
**Calculations:**
- **\( d_1 = \)** (This cell is highlighted in blue but no value is provided)
- **\( N(d_1) = \) 0.5000** (This represents the cumulative distribution function value for \( d_1 \))
- **\( d_2 = \)** (This cell is highlighted in blue but no value is provided)
- **\( N(d_2) = \) 0.5000** (This represents the cumulative distribution function value for \( d_2 \))
- **\( V_C = \)** (This cell is highlighted in green but no value is provided)
**Formulas Section:**
- Each cell in the "Formulas" column is marked with `#N/A`, indicating that the formulas required for the calculations might not be correctly entered or the setup is incomplete.
This spreadsheet appears to be a setup for calculating the value of a call option using the Black-Scholes Model, though some input values or formulas are missing or incomplete.
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