Suppose that the spread between the yield on a 3-year zero-coupon riskless bond and a 3-year zero-coupon

Question:

Suppose that the spread between the yield on a 3-year zero-coupon riskless bond and a 3-year zero-coupon bond issued by a corporation is 1%. By how much does Black-Scholes-Merton overstate the value of a 3-year European option sold by the corporation.

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...