Question: A particular stock sells for $27. A call option on this stock is available with a strike price of $28 and an expiration date in

A particular stock sells for $27. A call option on this stock is available with a strike price of $28 and an expiration date in four months. If the risk-free rate equals 6% and the standard deviation of the stock’s return is 40%, what is the price of the call option? Next, recalculate your answer assuming that the market price of the stock is $28. How much does the option price change in dollar terms? How much does it change in percentage terms?

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