Question
Asked Dec 1, 2019
20 views

A stock is selling today for $30. The stock has an annual volatility of 70 percent and the annual risk-free rate is 11 percent. Calculate the time value for a 9 month European call option with an exercise price of $25.

check_circle

Expert Answer

Step 1

Calculation of Time Value of European Call Option:

The time value of European call option is $10.38.

Excel Spreadsheet:

...
help_outline

Image Transcriptionclose

A B 1 Stock Price $30 2 Exercise Price $25 3 Period 0.75 4 Riskfree Rate 11% 5 Standard Deviation 70% 6 PV of Exercise Price 23.02028595 7 Square of Time 0.606217783 0.739951169 8 d1 0.133733386 9 d2 10 N(dl) 11 N(d2) 0.770335188 12.7346679 $10.38 Value of Call 12 $3.40 Value of Put 13

fullscreen

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Finance

Derivative Markets

Related Finance Q&A

Find answers to questions asked by student like you
Show more Q&A
add
question_answer

Q: Atlantic Corporation is the largest logging company in the north eastern part of the United States. ...

A: Dividends are declining at a constant rate of 5% with last dividend paid D0 being $5. Required rate ...

question_answer

Q: Floyd Industries stock has a beta of 1.25. The company just paid a dividend of $.40, and the dividen...

A: a.The formula to calculate value of stock using dividend discount model is given below:

question_answer

Q: Spacefood Products will pay a dividend of $2.15 per share this year. It is expected that this divide...

A: Expected Divided (D1) = $2.15Cost of Equity (Ke) = 14%Growth Rate (g) = 6% Calculation of Current Va...

question_answer

Q: Optimal corporation wants to expand their manufacturing facilities. They have two choices, first to ...

A: 1.)Computation of net present value of choice 1:Assumption: The cash outflow for expansion is made a...

question_answer

Q: Dell is considering replacing one of its material handling systems. The old system was purchased 7 y...

A: a.Calculation of cash flow of both alternatives using cash flow approach (insider’s viewpoint approa...

question_answer

Q: The option to develop follow-on projects, expand markets, expand or retool plants, and so on that wo...

A: The option to develop follow-on projects, expand markets, expand or retool plants, and so on that wo...

question_answer

Q: Judson's cost of capital is 12%, what is the DISCOUNTED Payback Period for the project? Year Cash...

A: Discounted payback period is calculated by finding the present value of all the cash flows and then ...

question_answer

Q: What effect would a decreased cost of capital have on a firm's future investments?

A: Cost of capital of the firm is its weighted average cost of capital. It considers the weighted propo...

question_answer

Q: What are the portfolio weights for a portfolio that has 150 shares of Stock A that sell for $40 per ...

A: The amount invested in stock A is calculated below: