Question
5. A call option matures in six months. The underlying stock price is $78 and the stock's return has a standard deviation of 29 percent
5. A call option matures in six months. The underlying stock price is $78 and the stock's return has a standard deviation of 29 percent per year. The risk-free rate is 4 percent per year, compounded continuously. If the exercise price is $0, what is the price of the call option? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
Call Option Price ____?
6. The Black-Scholes option pricing model with dividends is: C=SedtN(d1)EeRtN(d2)C=SedtN(d1)EeRtN(d2) |
d1=[ln(S/E)+(Rd+2/2)t](t)d1=[ln(S/E)+(Rd+2/2)t](t) |
d2=d1td2=d1t |
All of the variables are the same as the Black-Scholes model without dividends except for the variable d, which is the continuously compounded dividend yield on the stock. |
The put-call parity condition is altered when dividends are paid. The dividend-adjusted put-call parity formula is: |
Sedt+P=EeRt+CSedt+P=EeRt+C |
where d is the continuously compounded dividend yield. |
A stock is currently priced at $86 per share, the standard deviation of its return is 40 percent per year, and the risk-free rate is 5 percent per year, compounded continuously. What is the price of a put option with a strike price of $82 and a maturity of six months if the stock has a dividend yield of 3 percent per year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Price of the put option ____? |
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