Question
Question #4: Black-Scholes Call-Option Valuation [35 Points] Current Stock Price (S0) = $68 Strike Price (X) = $70 interest rate (r) = 0.06 annual dividend
Question #4: Black-Scholes Call-Option Valuation [35 Points]
Current Stock Price (S0) = $68 Strike Price (X) = $70 interest rate (r) = 0.06 annual dividend yield () = 0 Time to expiration = 45 days (0.125 years) Standard deviation () = 0.41 [A standard normal table is provided in Cat Courses under Other Files Folder.]
(a) Using the Black-Scholes formula, find the value of a call option given the above information. [15 Points]
(b) What is the price of the put-option, with the same strike price and expiration date as the call, using the same information? [Hint: Use the Put-Call Parity relationship] [10 Points]
(c) Recalculate the value of the call option and the put option if the time to expiration was 90 days (T = 0.25) instead of 45 days. Assume all other variables remain constant [10 Points]
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started