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    Applying the Black-Scholes Model

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    The current stock price of Johnson and Johnson is $64 and the stock does not pay dividends. The instantaneous risk free rate of return is 5%. The instantaneous standard deviation of J&J's stock is 20%. You wish to purchase a call option on this stock with an exercise price of $55 and an expiration date 73 days from now.

    Using the Black-Scholes OPM, what should the call option be worth today?

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    Solution Summary

    Solution describes the steps to calculate value of call option by using Black Scholes model.