Problema call option is the right to buy stock at 50 a, Ask an Expert

Accounting

Problem:

A call option is the right to buy stock at $50 a share. Currently the option has six months to expiration, the volatily of the stock (standard deviation) is .30, and the rate of interest is 10 percent

Required:

Question 1: What is the value of the option according to the Black-Scholes model if the price of the stock is $45, $50, or $55?

Question 2: What is the value of the option whne the price of the stock is $50 and the option expires in six months, three months, or one month?

Question 3: What is the value of the option when the price of the stock is $50 and the interest rate is 5 percent, 10 percent, or 15 percent?

Question 4: What is the value of the option when the price of the stck is $50 and the voliaty of the stock is .40, .30, or .10?

Question 5: What generalzation can be derived from the solutions to these problems?

Note: Provide support for your underlying principle.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91170611

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