Use the Black-Scholes formula to find the value of the following call option. i. Time to expiration 1 year. ii. Standard deviation 40% per year. iii. Exercise price $50. iv. Stock price $50. v. Interest rate 4% (effective annual yield). Now recalculate the value of this call option, but use the following parameter values. Each change should be considered independently.
Use the Black-Scholes formula to find the value of the following call option. i. Time to expiration 1 year. ii. Standard deviation 40% per year. iii. Exercise price $50. iv. Stock price $50. v. Interest rate 4% (effective annual yield). Now recalculate the value of this call option, but use the following parameter values. Each change should be considered independently.
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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Use the Black-Scholes formula to find the value of the following call option.
i. Time to expiration 1 year.
ii. Standard deviation 40% per year.
iii. Exercise price $50.
iv. Stock price $50.
v. Interest rate 4% (effective annual yield).
Now recalculate the value of this call option, but use the following parameter values.
Each change should be considered independently.
i. Time to expiration 2 years.
ii. Standard deviation 50% per year.
iii. Exercise price $60.
iv. Stock price $60.
v. Interest rate 6%.
c. In which case did increasing the value of the input not increase your calculation of
option value?
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