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You are considering the purchase of 100 units of a 3-month 25 - strike European call option on a stock. You are given: (i) The Black - Scholes framework holds. (ii) The stock is currently selling for 20. (iii) The stocks volatility is 24%. (iv) The stock pays dividends continuously at a rate proportional to its price. The dividend yield is 3%. (v) The continuously compounded risk-free interest rate is 5%. Calculate the price of the block of 100 options.

You are considering the purchase of 100 units of a 3-month 25 - strike European call option on a stock. You are given: (i) The Black - Scholes framework holds. (ii) The stock is currently selling for 20. (iii) The stocks volatility is 24%. (iv) The stock pays dividends continuously at a rate proportional to its price. The dividend yield is 3%. (v) The continuously compounded risk-free interest rate is 5%. Calculate the price of the block of 100 options.

Essentials Of Investments
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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You are considering the purchase of 100 units of a 3-month 25 - strike European call option on a stock. You are given: (i) The Black - Scholes framework holds. (ii) The stock is currently selling for 20. (iii) The stocks volatility is 24%. (iv) The stock pays dividends continuously at a rate proportional to its price. The dividend yield is 3%. (v) The continuously compounded risk-free interest rate is 5%. Calculate the price of the block of 100 options.
Transcribed Image Text:You are considering the purchase of 100 units of a 3-month 25 - strike European call option on a stock. You are given: (i) The Black - Scholes framework holds. (ii) The stock is currently selling for 20. (iii) The stocks volatility is 24%. (iv) The stock pays dividends continuously at a rate proportional to its price. The dividend yield is 3%. (v) The continuously compounded risk-free interest rate is 5%. Calculate the price of the block of 100 options.
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