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7. Assume the following information for a stock and a call option written on the stock: Exercise price = K40 Current stock price= 30 The
7. Assume the following information for a stock and a call option written on the stock:
Exercise price = K40
Current stock price= 30
The variance (2) .25 0r 25%
Time to expiration, .25year or a quarter
Risk free rate of return= 5% per annum
Answer the below questions
Use the Black-Scholes procedure to determine the value of the call option
Change the time to expiration, t, to 0.5 or six month and compute the call value again
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