Assume that each of the returns in Table 6.18 represent stocks with a value of $100. Assuming a discount rate of 4 percent compute the price of the call option using the Black-Scholes formula at time T = 0. 75 (nine months into the future) for a strike price of $95.

Table 6.18

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Year Stock returns Market 1 2 3 1995 0.04585 0.04786 0.04477 0.05357 1996 0.09852 0.11164 1997 0.04208 1998 0.02985 0.09407 0.06523 0.03453 0.04041 0.06062 0.01882 0.03047 0.02415 1999 0.04013 0.04555 0.03975 0.03896 2000 2001 2002 0.08145 0.10172 0.05566 0.10081 0.12329 0.07822 0.07495 0.05166 0.05444 0.04890 0.09584 0.08118 2003 0.05114 0.05834 0.05052 0.02753 2004 0.03348 0.03378 0.03520 0.03351 2005 0.05113 0.06067 0.05134 0.05281 2006 0.05904 0.06035 0.05753 0.05508 2007 -0.00807 -0.01987 -0.00307 0.00604 2008 0.05459 0.04363 0.05505 0.04482 2009 0.00926 -0.01069 0.01046 0.02844 2011 2012 2010 0.03796 0.04511 0.04352 0.05131 0.03295 0.04106 0.03771 0.04283 0.04147 0.03702 0.03396 0.06244