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Excel Question. Use the Black and Scholes file posted on the class website. Current stock price is S0 = 70, the annual stock volatility is
Excel Question. Use the Black and Scholes file posted on the class website. Current stock price is S0 = 70, the annual stock volatility is ? = 35%, and the annual dividend yield is ? = 0. The current risk-free interest rate is r = .01 = 1%. (a) Calculate the Black-Scholes prices of call options with strike K = 70 and maturity of 1, 2, 5, 10, 50, and 100 years. What will happen to call option prices as the time to maturity keeps increasing? 1 (b) Keeping every other parameter constant, suppose the dividend yield is now ? = 0.01 = 1%. Again calculate call option prices for strike K = 70 at the above maturities. What happens to option prices as time to maturity increases? (c) What accounts for the difference between (a) and (b)?
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