CONNECT WITH LEARNSMART FOR BODIE: ESSE
CONNECT WITH LEARNSMART FOR BODIE: ESSE
11th Edition
ISBN: 2819440196246
Author: Bodie
Publisher: MCG
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Chapter 16, Problem 16PS
Summary Introduction

Adequate information:

A call option with the following details-

Time to expiration (t) = 6 months = 0.5 years

Standard deviation per annum (s) = 50% = 0.5

Exercise price (X) = $50

Current stock price (S) = $50

Interest rate per annum ('r) = 3%

Dividend = $0

To Compute:

Value of the call option as per Black Scholes model.

Introduction:

As per Black scholes model, value of call option ('C) is given by:

  C= S × Nd1  Xert× Nd2

Where

'd1 = lnSX+(r+ σ 22)×t σ 2×t

'd2 = lnSX+(r σ 22)×t σ 2×t

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