In: Finance
3. Use the Black-Scholes model to find the price for a call option with the following inputs: 1) current stock price is $30, 2) Strike price is 32, 3) Time expiration is 4 months, 4) annualized risk-free rate is 5%, and 5) standard deviation of stock return is 0.25.
You need to calculate the call price using Black Sholes Model for Call price calculation, which is as below:
Per the formula above, we first need to calculate d1 and d2.
On calculating,
d1 = - 0.2639
On calculating d2 = - 0.4072
Call Price, C = $1.12