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    Black-Scholes model

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    Use the Black-Scholes model to find the value of a call option from the following:

    Current stock price is $30
    Exercise price is $35
    Time to expiration is 3 months = (0.25)
    Annualized risk free rate is 5%
    Variance of stock return is 0.49

    a. Call Value?

    b. Use the put call parity relationship and information from above to find the Put Value?

    c. If the Exercise price decreases to $30, what will be the new value of the call option?

    d. Why is the answer from a different from c?

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    Solution Summary

    Uses Black-Scholes model for calculating the call value and put value.