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Question 4 The current price of a non - dividend - paying share is R 1 4 0 and its volatility is thought to be
Question
The current price of a non dividend paying share is R and its volatility is thought to
be per annum. The continuously compounded risk free interest rate is per
annum.
A European call option on this share has a strike price of R and term to maturity
of one year.
i Calculate the price of this call option, assuming that the Black Scholes model
applies.
The market price for the option is actually R
ii Show that the volatility of the share implied by the true market price of the
option is per annum, to the nearest per annum.
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