Question

Use the Black-Scholes model to find the price for a call option with the following inputs: (1) current stock price is $31, (2) strike price is $34, (3) time to expiration is 8 months, (4) annualized risk-free rate is 5%, and (5) variance of stock return is 0.36. Do not round intermediate calculations. Round your answer to the nearest cent.

Answer 1

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DERIVATIVES BINOMIAL - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins Cut E AutoSum A A Wrap Text Calibri 11 General Copy Fill в IU- Insert Delete Format Paste $ % , +.0 .00 .00 0 Conditional Format Cell Sort & Find & aMerge & Center Format Painter Clear Filter Select Formatting as Table Styles Number Editing Clipboard Font Alignment Styles Cells fox AO50 Formula Bar AQ AP AR AL AM AT ВА AN AO AU AV AW AX AY AZ 32 33 34 35 36 37 38 31 39 K = 34 40 0.05 r = a (A) = 0.6 [variance 0.36, so standard deviation 0.6] 41 0.66667 [8/12] T = 42 43 44 45 46 d1 [In(31/34) +(0.05 0.5*(0.6)^2) (0.666667)]/(0.6*(SQRT(0.666667)] 47 48 d1 = 0.12443 49 50 BS BINOMIAL Sheet2 Sheet3 Sheet5 Sheet6 Sheet7 Sheet4 RISK NEUTRAL II Rea erences 130% WA 09:57 ENG 23-11-2019

DERIVATIVES BINOMIAL - Microsoft Excel (Product Activation Failed) Page Layout Formulas File Home Insert Data Review View Add-Ins E AutoSum Cut A A Wrap Text Calibri 11 General Copy Fill в IU- Merge & Center Insert Delete Format Paste 0 00 Conditional Format Cell Sort & Find & % Format Painter Clear Filter Select Formatting as Table Styles Number Clipboard Font Alignment Styles Cells Editing fox AS64 AL АМ AN АО АР AQ AR AS AT AU AV AW АХ AY AZ ВА 49 50 a* SQRT(T) d2 d1 51 d2 = -0.3655 52 53 N(d1) 0.549514 e^(-0.05*0.66667)= 0.967216 54 N(d2) 55 0.357383 56 LEI 57 VALUE OF CALL OPTION = Nd2) 58 S NCd, ke 59 60 31 (0.549514) 34*(0.967216)*(0.357383) 61 VALUE OF CALL OPTION = 17.03 11.75 62 VALUE OF CALL OPTION = 63 VALUE OF CALL OPTION = 5.28 64 65 66 67 Sheet3 Sheet6 RISK NEUTRAL Sheet4 Sheet5 Sheet7 Sheet2 ΒΙΝΟΜΙAL BS erences 130% XУ W 09:58 ENG 23-11-2019