Question

(8-3) Black-Scholes Model INTERMEDIATE PROBLEMS 3-4 Assume that you have been given the following information on Purcell Corporation's call options: Strike price of option = $15 Risk-free rate 6% Current stock price = $15 Time to maturity of option = 6 months Variance of stock return = 0.12 d = 0.24495 d. = 0.00000 N(d) = 0.59675 N(d) = 0.50000 According to the Black-Scholes option pricing model, what is the option's value?

Answer 1

Solution is as follows:

According to he alack - Scholes option ricing Model, Value aven by C-ST N(d)- Ket N(d2) Call opion whore, C- rice fa Coll option ST-Paice theUnderlying asset k Stke frice o the Option Trate oînterest ime to hon N Nomal dintributien /2xo00 C-15 XO 59675-15e 8.95125-A5e.0x 0-5000 0 8.95125-15 x0.9704455 xO Socoo 8. 15125-727834 $1 67291 (aptaox) Theuforte Value of, Call option $1.61291 Cappoox).

Please note tha values oN(d,) and Nid2) have been ueshon o, we have used he Volues o Ndi) and Nida) diveety tnto the mulafercalule hng Volue of Call pm Hod they NCd) and N(d2) °dnecty , her oould have calcu la ted the same not Gfven the volues we usinfmlo o ds and d grun au di (Srk)t+ and, d di - JE here, Vo lah of the Stak n- og une hion