You are given the following information about a European call option on stock ABC: S = $40; X = $37; R = 4.5% per year, continuously compounded; sigma = 53%; and T = 2 years.

- What is N(d2) when you use the Black-Scholes formula to price the option (choose the closest one)?

A. 0.5989

B. 0.7254

C. 0.4401

D. -0.1507

- What is d1 when you use the Black-Scholes formula to price the option?

A. 0.5989

B. 0.7254

C. 0.4401

D. -0.1507

- What is the call option value when you use the Black-Scholes formula to price the option (choose the closest one)?

A. 14.13

B. 25.87

C. 17.50

D. 20.00

The Black-Scholes option pricing formula is based on the assumption that stock price has constant expected return and constant return risk .= True or False

Everything else equal, when the underlying assets become more volatile, the American call option (no dividend paid till expiration) value becomes higher; the value of the American put option will be also higher.= True or False

Call options are more valuable when, everything else equal, the underlying asset value becomes more volatile.= True or False