There is a European call option on the S&500 index. There are two months till maturity. The current value of the index is 3910 and the exercise price on the call is 3900. The continuously compounded risk-free interest rate is 5%. The volatility of the index is 20% per annum and the annual dividend yield is 3%. How much would you be willing to pay for this call option if each index point is worth $100?

There is a European call option on the S&500 index. There are two months till maturity. The current value of the index is 3910 and the exercise price on the call is 3900. The continuously compounded risk-free interest rate is 5%. The volatility of the index is 20% per annum and the annual dividend yield is 3%. How much would you be willing to pay for this call option if each index point is worth $100?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section20.A: The Black-scholes Option Pricing Model

Problem 1P

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