A share in Virgin Australia was trading at around $0.15 in December 2019. Suppose the expected return from the stock is 5% and the volatility is 9% p.a., and the risk-free rate is 1.5% p.a. continuously compounded.

(i)What is the expected stock price in 9 months, assuming the same assumptions as under the BSM model?

Answer

What is the expected growth rate in prices, continuously compounded?

Answer

Virgin went into bankruptcy proceedings on April 21, and its stock price is currently $0.086. an options dealer wants to sell you a call option for Virgin Australia, how much are you willing to pay for the option, assuming that Virgin Australia does not pay dividends?