Use the B-S OPM to calculate the value of a call option with the following data:...

Use the B-S OPM to calculate the value of a call option with the following data:

Price of the underlying stock = $30; strike price = $35; risk-free rate of return = 5%; variance of the stock returns = .25; and time to expiry of the call option is 4 months

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Expert Solution

The Black Scholes call option formula is calculated by multiplying the stock price by the cumulative standard normal probability distribution function. Thereafter, the net present value (NPV) of the strike price multiplied by the cumulative standard normal distribution is subtracted from the resulting value of the previous calculation.

i.e

Normal distribution(Z) or N is calculated using Excel formula for the value of d1 and d2

ekkarill92 answered 1 year ago

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