Question
Using Goal Seek function in Excel, and the spreadsheet posted, answer the following questions. Consider an European call option, with the following information Time to
Using Goal Seek function in Excel, and the spreadsheet posted, answer the following questions. Consider an European call option, with the following information
Time to expiration = 6 months
Historical standard deviation = 30% per year
Exercise price = $105
Stock price = $100
Interest rate = 5%
a. What is the implied volatility of the option if the option currently sells for $8? (Hint: go to the Menu of spreadsheet and select Goal Seek. The dialog box will ask you for three pieces of information. In that dialog box, you should set cell E6 to value 8 by changing cell B2. In other word, you ask the spreadsheet to find the value of the option in cell E6 equal to $8. Then click OK, and you should find the call now is work $8 and the entry for standard deviation has been changed to a level consistent with this value. This the call's implied volatility at a price of $8) implied volalitity = ?
b. What is the implied volatility of the option if the option currently sells for $9.5?
implied volalitity = ?
c. What is the implied volatility of the option if the option price is unchanged at $8, but the option expiration is lower, say 3 months (T = 0.25) implied volalitity = ?
d. What is the implied volatility of the option if the option price is unchanged at $8, but the exercise price is lower, say only $100.
implied volalitity = ?
e. What is the implied volatility of the option if the option price is unchanged at $8, but the stock price is lower, say only $98
implied volalitity = ?
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