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a) Muhammad Afifi wants to earn an income by writing a call option on Gamuda Berhad stock. The current stock price of Gamuda is $40

a) Muhammad Afifi wants to earn an income by writing a call option on Gamuda Berhad stock. The current stock price of Gamuda is $40 per share, and Afifi wants to write a 3-month call option with a striking price of $40 per share. Afifi plans to use the Black-Scholes model (BSOPM) to determine the appropriate premium to charge for the call option. Afifi has determined that the stock's variance is 0.25. The riskless rate is assumed to be 9 percent. Calculate the theoretical value of the Gamuda's call premium by using Black-Scholes model. (10 marks)

b) Using the Black-Scholes model (BSOPM), compute the standard deviation that is implied by the following call option data as: the time to the option's maturity is 0.25 years, the price of the underlying option asset is $30, the continuously compounded risk-free interest rate is 0.12,the exercise or striking price is $30, and the cost or premium of the call is $1.90. (10 marks)

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