Question

A call option has an exercise price of $70 and matures in six months. The current stock price is $73, and the risk-free rate is 5 percent per year, compounded continuously. What is the price of the call if the standard deviation of the stock is O percent per year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Call option price

Answer 1

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® v a ax 2 ENG 02:17 15-04-2020 E18 X ✓ fic A B D E H I J K L M N A IF STANDARD DEVIATION IS ZERO d1 = POSITIVE INFINITY N(d1) = POSITIVE INFINITY d2= N(D2) = SO THE FORMULA FOR NO RISK CALL OPTION CALL OPTION PRICE = CALL OPTION PRICE = CALL OPTION PRICE = 14 ANSWER CALL OPTION PRICE = S-K*e^(-rt) 73 - 70*e^(-0.05*0.5) 73 - (70*0.9753099) 4.73 S = 73, K = 70 r =5%, t = 6/12 =0.5 NOTE e^(-0.05*0.5)= 0.9753099 ... call put CALL EXCEL RISK NEUTRAL FLORIDA sd=0 COMPENSATION ZEVON Sheet7 BINOMIAL DISCRETE Sheet2 WET F... • : |