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    Calculating the Value of Option

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    Black-Scholes Model

    Assume that you have been given the following information on Purcell Industries:
    Current stock price = $18 Strike price of option = $13
    Time to maturity of option = 4 months Risk-free rate = 5%
    Variance of stock return = 0.13
    d1 = 1.747426 N(d1) = 0.959718
    d2 = 1.539259 N(d2) = 0.93813

    According to the Black-Scholes option pricing model, what is the option's value? Round your answer to the nearest cent.

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    Solution Preview

    Current Price of stock=S= 18
    Strike price of option=K= 13
    Risk free rate=r= 5%
    Time remaining ...

    Solution Summary

    This solution depicts the steps to estimate the value of a option- the full solution is clearly presented in an Excel file.