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Veblen International would like you to demonstrate your knowledge of the Black-Scholes option pricing model by finding the call price of a U.S. call option with the following characteristics. Show and submit all work completed:

* stock price = $60
* exercise price = $60
* risk-free rate = 10%
* volatility (variance of stock returns) = 11% per year
* time to maturity = 4 months

Mr. Herman has one final request before he presents his currency risk reduction plan to the board of directors next week. He would like you to construct a 5 paragraph document detailing the various concepts that are not clearly understood by several members of the upper-level management:

1. swap rates
2. in the money, out of the money, at the money
3. plain vanilla swap
4. put-call parity

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This solution is comprised of answers related with finance.

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  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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