Question

QUESTION 3 A European call option written on one share of Medident Corp. has the following parameter values: S = $220, X = $200, r = 5% p.a., sigma = 20% p. a., T = 12 months. Find the call option's premium, rounded to 2 decimals (e.g., 3.24). Do NOT include the $ sign in your answer; write only the numerical value. NOTE: Use the continuous time version of the Black-Scholes equation (i.e., do NOT use the book's version).

Answer 1

So lets simplify the above problem

Spot price $220 , Strike Price $200, Volatility = 20% , Time = 12 months,  Risk Free Interest Rate = 5%

There is no mention of Dividend which we will assume to be NIL  

Call option Premium = SN(d1) - Xe^-rT N(d2) = 220 N( d1) - 200 e^-5*1 N (d2)

For finer details if required N= Normal distribution with 20% Standard Distribution ( sigma)  

di & d2 has to be solved with logarithmic tables as they represent statistical probabilities over the time ( T) to maturity

On solving the above ANSWER is 35.33 which is Call options premium