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Consider an option on a non-dividend paying stock where the stock price is $30, the strike price is $29, the continuously compounded risk-free rate of
Consider an option on a non-dividend paying stock where the stock price is $30, the strike price is $29, the continuously compounded risk-free rate of return is 5% per year, the continuously compounded standard deviation of its return is 25% per year and the time to maturity is 4 months.
If the Black-Scholes price of a European call on this option is C, the purchaser of this European call would break-even (ignoring the time value of money) if the stock price at maturity is
$29 + C | ||
$30 - C | ||
$29 - C | ||
$30 + C |
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