Question

What is the price of a $41 strike European put? Assume S = $38, σ = 0.25, r = 0.06, the stock pays no dividend and the option expires in 45 days (use 365 days in a year to calculate time to expiration and choose the answer within 15 cents of yours to account for rounding)?

Select one:

a. 3.13

b. 3.82

c. 3.42

d. 3.52

Answer 1

	Option price=	= Xe –rt × N(-d2) – S × N(-d1)
	d1 =	[ ln(S/X) + ( r+ v2 /2) t ]/ v t0.5
	d2 =	d1 - v t0.5
	Where
S=	Current stock price=	38
X=	Exercise price=	41
r=	Risk free interest rate=	6%
v=	Standard devriation=	25%
t=	time to expiration (in years)=		0.123288
d1 =	[ ln(38/41) + ( 0.06 + (0.25^2)/2 ) *0.12329] / [0.25*0.12329^ 0.5 ]
d1 =	[ -0.07599 + 0.01125 ] /0.087781
d1 =	-0.7374718
d2 =	-0.73747 - 0.25 * 0.12329^0.5
	-0.825252636
N(-d1) =	N( - -0.73747 ) =	0.76958
N(-d2) =	N( - -0.82525 ) =	0.79539
	41 × e^(-0.06 × 0.12329) ×(1- N( -0.82525)) -38× (1-N(-0.73747))
Option price=	3.13

Answer is $3.13

Please rate.