The current price of a non-dividend-paying stock is $275 and the annual standard deviation of the...

The current price of a non-dividend-paying stock is $275 and the annual standard deviation of the rate of return on the stock is 50%. A European call option on the stock has a strike price of $340 and expires in 0.25 years. The risk-free rate is 4% (continuously compounded).

1. What is the value of N(d₁) in the Black-Scholes formula? Use Excel's NORM.S.DIST(d₁, true) function.

2. What is the value of N(d₂)?

3. What should be the price (premium) of the call option?

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

EXCEL CELL REFERENCE SHOWN FOR N(d1) AND N(d2)

ALL CALCULATIONS ARE MANUAL, NO EXCEL FUNCTION IS USED, FORMULAS SHOWN

jeff jeffy answered 2 years ago

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