The current stock price of Johnson & Johnson is $62, and the stock does not pay...

The current stock price of Johnson & Johnson is $62, and the stock does not pay dividends. The instantaneous risk-free rate of return is 3%. The instantaneous standard deviation of J&J's stock is 35%. You want to purchase a put option on this stock with an exercise price of $53 and an expiration date 72 days from now. Using Black-Scholes, the put option should be worth ______ today.

Expert Solution

Value of Put

0.6750

WORKINGS

*Input Data*
Stock Price now (P)		62
Exercise Price of Option (EX)		53
Number of periods to Exercise in years (t)		0.197260274
Compounded Risk-Free Interest Rate (rf)		3.00%
Standard Deviation (annualized s)		35.00%


*Output Data*
Present Value of Exercise Price (PV(EX))		52.6873
s*t^.5		0.1554
d1		1.1248
d2		0.9693
Delta N(d1) Normal Cumulative Density Function		0.8697
Bank Loan N(d2)*PV(EX)		43.9309
*Value of Call*		9.9877

*Value of Put*		0.6750

Formulae used

jeff jeffy answered 7 months ago

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