In: Finance
Consider a call option with a strike price of $60 where the underlying stock is currently trading at $67 the continuously compounded risk free rate is 5%, and the standard deviation of the stock returns is 40% per year. The option has 9 months to expiration. Using the Black-Scholes model, what is the value of the call option?
Solution.>
The Price of the Call option is $13.94
The formula of Call Price is : = S0 * N(D1) - K * e-rt * N(D2)
Type of Option | Call Option | |
Stock Price (S0) | $ 67.00 | |
Exercise (Strike) Price (K) | $ 60.00 | |
Time to Maturity (in years) (t) | 0.75 | |
Annual Risk Free Rate (r) | 5.00% | |
Annualized Volatility (σ) | 40.00% | |
Option Price | $ 13.94 | =S0*N(D1)-K*e-rt*N(D2) |
Additional Calculation Parameters | ||
ln(S0/K) | 0.110 | |
(r+σ2/2)t | 0.098 | |
σ√t | 0.346 | |
d1 | 0.600 | =(ln(S0/K)+(r+σ2/2)t)/σ√t |
d2 | 0.254 | =D1-σ√t |
N(d1) | 0.726 | =NORM.S.DIST(d1) |
N(d2) | 0.600 | =NORM.S.DIST(d2) |
N(-d1) | 0.274 | =NORM.S.DIST(-d1) |
N(-d2) | 0.400 | =NORM.S.DIST(-d2) |
e-rt | 0.96319 |
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