Stock price |
= |
$85 |
Exercise price |
= |
$80 |
Risk-free rate |
= |
3.80% per year, compounded continuously |
Maturity |
= |
5 months |
Standard deviation |
= |
55% per year |
Find the put price of the option. Round your Z scores to 2 decimal spaces and provide an answer accurate to the nearest cent without the $ sign.
In this case, S0 = 85; X = 80; r = 0.038; sd = 0.55 and T = 5/12
d1 = [{ln(S0/X)} + {t(r - q + sd2/2)}] / [sd(t)1/2]
= [{ln(85/80)} + {(5/12)(0.038 + 0.552/2)}] / [0.55(5/12)1/2]
= 0.1395 / 0.3550 = 0.3929
d2 = d1 - [sd(t)1/2]
= 0.3929 - [0.55(5/12)1/2]
= 0.3929 - 0.3550 = 0.0378
P = [X * e-rt * N(-d2)] - [S0 * e-qt * N(-d1)]
= [$80 * e-0.038*(5/12) * N(-0.0378)] - [$85 * e-0*(5/12) * N(-0.3929)]
= [$80 * 0.9843 * 0.4849] - [$85 * 1 * 0.3472]
= $38.18 - $29.51 = $8.67
Stock price = $85 Exercise price = $80 Risk-free rate = 3.80% per year, compounded continuously...
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