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Using the Black/Scholes Option Pricing Model, calculate the value of the call option given: S= 74;  ...

Using the Black/Scholes Option Pricing Model, calculate the value of the call option given:

S= 74;               X=70;               T=6 months;                   =.50;             Rf =10%

What is the intrinsic value of the call?

What stock price is necessary to break-even?

If volatility were to decrease, the value of the call would ___________?

If the exercise price would increase, the value of the call would ___________?

If the time to maturity were 3-months, the value of the call would ___________?

If the stock price were $62, the value of the call would _________?

What is the maximum value that a call can take? Why?

Solutions

Expert Solution

1.
=MAX(S-X,0)
=MAX(74-70,0)
=4

2.
=Price of call+Strike Price
=14+70
=84.00

For price of call see below

3.
Decrease

4.
Decrease

5.
Decrease

6.
Decrease

7.
Maximum value of call is 74

Because the value cannot exceed more than the stock price

jeff jeffy answered 2 years ago
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