The stocks of Cee Mobile Limited is currently trading at $73 each. The call option on the company’s stock has an exercise price of $70, with fifty (50) days remaining to expiration. It is assumed that the yield on treasury bills is currently 2%, while the volatility of the stock price is estimated as being 35%. Required: i. Using the Black-Scholes-Merton (BSM) model, calculate the value of the Call option, given the above parameters. Show all relevant workings.

The stocks of Cee Mobile Limited is currently trading at $73 each. The call option on the company’s stock has an exercise price of $70, with fifty (50) days remaining to expiration. It is assumed that the yield on treasury bills is currently 2%, while the volatility of the stock price is estimated as being 35%. Required: i. Using the Black-Scholes-Merton (BSM) model, calculate the value of the Call option, given the above parameters. Show all relevant workings.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 8P: A stock is trading at $80 per share. The stock is expected to have a yearend dividend of $4 per...

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A stock is trading at $80 per share. The stock is expected to have a yearend dividend of $4 per share (D1 = $4), and it is expected to grow at some constant rate, g, throughout time. The stock’s required rate of return is 14% (assume the market is in equilibrium with the required return equal to the expected return). What is your forecast of gL?
The stocks of Cee Mobile Limited is currently trading at $73 each. The call option on the company’s stock has an exercise price of $70, with fifty (50) days remaining to expiration. It is assumed that the yield on treasury bills is currently 2%, while the volatility of the stock price is estimated as being 35%. a. Using the Black-Scholes-Merton (BSM) model, calculate the value of the Call option, given the above parameters. Show all relevant workings. b. Of the value computed, how much is the intrinsic value and the time value of the Call option? c. Using the BSM model and the information given above, calculate the value of the Put option on the stock, with a similar strike price and days to expiration.
The stocks of Cee Mobile Limited is currently trading at $73 each. The call option on thecompany’s stock has an exercise price of $70, with fifty (50) days remaining to expiration. It isassumed that the yield on treasury bills is currently 2%, while the volatility of the stock price isestimated as being 35%.Required:i. Using the Black-Scholes-Merton (BSM) model, calculate the value of the Call option, given theabove parameters. Show all relevant workings. ii. Of the value computed, how much is the intrinsic value and the time value of the Call option? iii. Using the BSM model and the information given above, calculate the value of the Put optionon the stock, with a similar strike price and days to expiration
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