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PLEASE SHOW ALL WORK The following information is given concerning options on the stock of a certain company: S = 23, E = 20, r

PLEASE SHOW ALL WORK

The following information is given concerning options on the stock of a certain company:

S = 23, E = 20, r = .09, T = .5, variance = .15, no dividends are expected.

Answer the following 2 questions:

  1. What value does the Black-Scholes model predict for the call? Show ALL WORK
  2. If the actual call price is 3.79, then argue if the implied standard deviation is greater than, equal to or less than 0.25. Provide a clear statement.

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