Question: (Valuing call options) (Related to Checkpoint 20.3 on page 686) Youve just been introduced to the Black-Scholes option pricing model and would like to use

(Valuing call options) (Related to Checkpoint 20.3 on page 686) You’ve just been introduced to the Black-Scholes option pricing model and would like to use it to calculate the value of a call option on TriHawk stock. Currently, TriHawk’s common stock is selling for $25.00 per share, and the call option you are considering has an exercise or strike price of $20.00 with a maturity of 90 days or .25 years. In addition, you have calculated the (annualized) variance in its stock returns to be .09. If the risk-free rate of interest is 4 percent, what is the value of this call option? How does your answer change if there is only one month left to expiration but everything else remains the same? Now what happens to the value of this call option if the annualized variance in stock returns is .15 rather than .09?

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