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Consider the following option on SSS stock: The stock price is $35, the exercise price is $40, and the annual yield on treasury bill is 10%. The historical standard deviation of the stock is .45 per year, and it is assumed to be constant. The duration of the call is 4 months. The quoted option price in the WSJ is $7.45.

a) calculate the value of the call option using Black-Scholes Option Pricing Model. Is the option undervalued or overvalued? Why?

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Financial Management, Finance

Category:- Financial Management
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