Question about Value of Call Option using Black-Scholes model
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An analyst is interested in using the Black-Scholes model to value call options on the stock of Ledbetter Inc. The analyst has accumulated the following information:
· The price of the stock is $40.
· The strike price is $40.
· The option matures in 3 months (t = 0.25).
· The standard deviation of the stock's returns is 0.40 and the variance is 0.16.
· The risk-free rate is 12 percent.
Given this information, the analyst is then able to calculate some other necessary components of the Black-Scholes model:
· d1 = 0.25.
· d2 = 0.05.
· N(d1) = 0.5987.
· N(d2) = 0.5499.
N(d1) and N(d2) represent areas under a standard normal distribution function. Using the Black-Scholes model, what is the value of the call option?
$3.38
$2.60
$3.76
$3.87
$4.12
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Solution Summary
Black-Scholes model has been used to value call options on the stock of Ledbetter Inc.
Solution Preview
An analyst is interested in using the Black-Scholes model to value call options on the stock of Ledbetter Inc. The analyst has accumulated the following information:
? The price of the stock is $40.
? The strike price is $40.
? ...
Purchase this Solution
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