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Problem 1 6 - 0 6 Problem 1 6 - 0 6 Suppose the current value of a popular stock index is 6 5 1

Problem 16-06
Problem 16-06
Suppose the current value of a popular stock index is 651.00 and the dividend yield on the index is 2.9%. Also, the yield curve is flat at a continuously compounded rate of 6.0%.
a. If you estimate the volatility factor for the index to be 15%, use the Black-Scholes model to calculate the value of an index call option with an exercise price of 665 and an expiration date in exactly three months. You may use Appendix D to answer the question. Do not round intermediate calculations. Round your answer to the nearest cent.
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b. If the actual market price of this option is $17.05, calculate the implied volatility coefficient. Do not round intermediate calculations. Round your answer to two decimal places.
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