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Question 6 [24 marks] Consider the following data for Nestle Bhd. stock in a sub-period of trading days: Date Close 6/4/2021 135.5 7/4/2021 136.5 8/4/2021
Question 6 [24 marks] Consider the following data for Nestle Bhd. stock in a sub-period of trading days: Date Close 6/4/2021 135.5 7/4/2021 136.5 8/4/2021 135.1 9/4/2021 136.1 12/4/2021 136.5 13/4/2021 135.8 14/4/2021 135.5 15/4/2021 136.4 Suppose now that you decide to gather additional data for the sub-period. Specifically, you obtain information for a call option of Nestle Bhd. with a current price of $4 and the following characteristics: Exercise price = $135; Spot price = $142; and the call option has time to expiration of 60 days; T-bills = 3.5 percent; and dividend yield is 15 percent. Compute Nestle's fair value for this call option using the Black Scholes model, hence, determine your strategy for this option. For convenience, you can use normal distribution table (appendix) to find the N(d) with up to 2 decimals. Other computations should show figures up to 5 decimals to minimize inconsistency
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