5. An analyst wants to use the Black-Scholes model to value call options on the stock of Ledbetter Inc. based on the following data: The price of the stock is $40. The strike price of the option 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 6%.
Given this information, the analyst then calculated the following necessary components of the Black-Scholes model: d1 = 0.175 d2 = -0.025 N(d1) = 0.56946 N(d2) = 0.49003
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?
a. $2.81
b. $3.12
c. $3.47
d. $3.82
e. $4.20
Numbers and figures are an essential part of our world, necessary for almost everything we do every day. As important…
APPROVED BY CLIENTS
"assignmentexpert.com" is professional group of people in Math subjects! They did assignments in very high level of mathematical modelling in the best quality. Thanks a lot
Comments
Leave a comment