Rebecca is interested in purchasing a European call on a hot new stock, Up, Inc. The call

Question:

Rebecca is interested in purchasing a European call on a hot new stock, Up, Inc. The call has a strike price of $100 and expires in 90 days. The current price of Up stock is $120, and the stock has a standard deviation of 40% per year. The risk-free interest rate is 6.18% per year.

a. Using the Black-Scholes formula, compute the price of the call.

b. Use put-call parity to compute the price of the put with the same strike and expiration date.

Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity.