a) Use the Black-Scholes formulas to determine the value of a European call option.

The following information is given:

Current stock priceS0 $50.00

Strike priceX $45.00

Annual risk-free rater 6.5%

Time to expiration in years T 2.5 years

Annualized standard 30%

0=(2)0(1)

0=0(1)(2)

where:

1=ln0 ++2 2

2=1

P0= Current put premium C0= Current call premium S0= Current stock price N(d)= The probability that a random draw from a standard normal distribution will beless than dX = Strike pricer = Risk-free interest rateT = Time to maturity of option, in years = Standard deviation of the annualised rate of return of the stock e = 2.71828