Problem 8-20 (Algorithmic) Options are popular instruments in the world of finance. A call option on a stock gives the owner the right to buy the stock at a predetermined price before the expiration date of the option. For example, on Friday, August 25, 2006, call options were selling for Procter & Gamble stock that gave the owner of the option the right to buy a share of stock for $40 on or before September 15, 2006. The asking price on the option was $1.45 at the market close. How are options priced? A pricing formula for options was developed by Fischer Black and Myron Scholes and published in 1973. Scholes was later awarded the Nobel Prize for this work in 1997 (by this time Black was deceased). The Black-Scholes pricing model is widely used today by hedge funds and traders. The Black-Scholes formula for the price of a call option is C=S PSN(Z)] - Xe MT [PSN(Z - GVT) ] where C = market price of the call option X = strike or exercise price of the stock S = current price of the stock I' = annual risk-free interest rate I = time to maturity of the option (in years)