The following information is given about options on the stock of a certain company. S0 = 23 X = 20 rc = 0.09 T = 0.5 2 = 0.15 No dividends are expected. Use this information to answer questions 1 through 8.

1. What value does the Black-Scholes-Merton model predict for the call? (Due to differences in rounding your calculations may be slightly different. none of the above should be selected only if your answer is different by more than 10 cents.)

2. Suppose you feel that the call is overpriced. What strategy should you use to exploit the apparent misvaluation? (Due to differences in rounding your calculations may be slightly different. none of the above should be selected only if your answer is different by more than 10 shares.)

3. The price of a put on the stock is: (Due to differences in rounding your calculations may be slightly different. none of the above should be selected only if your answer is different by more than 10 cents.)

4. To construct a riskless hedge, the number of puts per 100 shares purchased is: (Due to differences in rounding your calculations may be slightly different. none of the above should be selected only if your answer is different by more than 0.01.)

5. The call's vega is: (Due to differences in rounding your calculations may be slightly different. none of the above should be selected only if your answer is different by more than 0.05.)

6. If the actual call price is 3.79, the implied standard deviation is

7. If we now assume that the stock pays a dividend at a known constant rate of 3.5 percent, what stock price should we use in the model? (Due to differences in rounding your calculations may be slightly different. none of the above should be selected only if your answer is different by more than 10 cents.)

8. If we now assume that the stock pays a single dividend of 2.25 in three months, what stock price should we use in the model? (Due to differences in rounding your calculations may be slightly different. none of the above should be selected only if your answer is different by more than 10 cents.)

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