Last recorded share price of XYZ Ltd is $35. A call option which expect to expire in three months is available with strike price of $40.00. The average annual dividend yield of the share is 4% and standard deviation of the return is 12%.

a) If risk free rate is 8% estimate the value of the option using Black Scholes option valuation model (05 Points).

b) if this option is trading at $9.56, are you suggesting buy it or sell it? Justify your answer (02 points).