Answered

Get the answers you need at Westonci.ca, where our expert community is dedicated to providing you with accurate information. Experience the convenience of finding accurate answers to your questions from knowledgeable experts on our platform. Discover detailed answers to your questions from a wide network of experts on our comprehensive Q&A platform.

The current price of ABC stock is $200. The standard deviation is 22.5 percent a year and the interest rate is 21 percent a year. A one-year call option has an exercise price of $180.00. Use Black-Scholes to value a call option on ABC.

Sagot :

hyderali230

Answer:

$55.4930

Explanation:

Use the following formula to calculate the value of the call option

Value of call option = ( [tex]S_{0}[/tex] x N([tex]d_1[/tex]) ) - (K x [tex]e^{-rt}[/tex] x N([tex]d_2[/tex]))

where

[tex]S_{0}[/tex] = current spot price = $200

K = strike price = $180

r = risk-free interest rate

t is the time to expiry in years

N ([tex]d_1[/tex]) = NORMSDIST [ (ln(S0 / K) + (r + σ2/2) x T) / σ√T ] = NORMSDIST [  ln(200 / 180) + (0.21 + (0.2252/2) x 1 / 0.225 x √1 ] = 0.9350

N ([tex]d_2[/tex]) = NORMSDIST [d1 - σ√T ] = NORMSDIST [ 0.9350 - 0.225 x √1 ] = 0.9013

Placing values in the formula

Value of call option = ( $200 x 0.9350 ) - ($180 x [tex]e^{-(0.21)(1)}[/tex] x 0.9013)

Value of call option = $55.4930

We appreciate your visit. Our platform is always here to offer accurate and reliable answers. Return anytime. We hope our answers were useful. Return anytime for more information and answers to any other questions you have. Thank you for using Westonci.ca. Come back for more in-depth answers to all your queries.