Bonds value

Suppose stock ABC is trading at $41.40 today. You are looking at a call option with a strike price of $40 that

will expire in six months. Assuming risk-free rate is 2% and the expected volatility for stock ABC is 50%.

(2) What is the Black-Scholes value for the Call?

(3) What is the probability this call will be in the money at expiration?

(4) What is the Black-Scholes value for the Put (same strike price, maturity, and volatility)?

(5) What is the probability this put will be in the money at expiration?

Please decompose this stock ABC Call into its three components:

(6) Intrinsic value is ___ ?

(7) Time value is ____?

(8) Volatility value is _____?

Volatility Value:

2

(9) How do changes in the stocks volatility affect VV?

(10) How do changes in the underlying stock price affect VV?

(11) How does the time to maturity affect VV?