Question

Based on the following information for a call option on a stock, S-$90 X=$80 RF=.05 T-3 months 6 20 What is the call premium based on the Black/Scholes model? Select one: a. $11,37 b. $10.12 c. $13.11 d. $12.54 e. $9.34

Answer 1

Option A - Call premium is $11.37

Black Scholes mdoel:

Inputs:
Current stock price (S)	90.00
Strike price (K)	80.00
Time until expiration(in years) (t)	0.250
volatility (s)	20.0%
risk-free rate (r)	5.00%

Formulae:
d1 = {ln(S/K) + (r +s^2/2)t}/(s(t^0.5))
d2 = d1 - (s(t^0.5))
N(d1) - Normal distribution of d1
N(d2) - Normal distribution of d2
C = S*N(d1) - N(d2)*K*(e^(-rt))

Output:
d1	1.3528
d2	1.2528
N(d1)	0.9119
N(d2)	0.8949
Call premium (C)	11.3751