Double Dice Ltd., a burgeoning Quebec company excelling in crafting bespoke footwear, has recently welcomed you aboard as a financial analyst. Given that the team at Double Dice lacks fundamental knowledge about financial options, you have been tasked with drafting a concise report to enlighten the firm's executives on the basics. Initially, you scoured external resources on the topic and formulated a list of relevant questions that need addressing. A potential structure for the report could be a question-and-answer format. With the questions ready, it's time to formulate the answers. Part (a): A share is in play at 40, flaunting a 4% continuous dividend yield and 22% annualized volatility. A one-year call option on this share sports a strike price of 36. The continuous risk-free rate is 2.5%. Risk factors are: d1 = 0.560, N(d1) = 0.713, d2 = 0.360, N(d2) = 0.640. Use the Black-Scholes-Merton model to compute the value of the call option. (2.5 Marks) Part (b): How do the ensuing call option parameters impact the value of a put option? (5 Marks) (1) Present stock price (2) Strike price (3) Option's tenure to maturity (4) Volatility of the stock price (5) Level of interest rates Part (c)

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Part a To compute the value of the call option using the BlackScholesMerton model we can use the fol... View the full answer