a. Use the Black-Scholes formula to find the value of a call option on the following stock.
Question:
i. Time to expiration 1 year
ii. Standard deviation 40% per year
iii. Exercise price $50
iv. Stock price $50
v. Interest rate 4% (effective annual yield)
b. Now recalculate the value of this call option, but use the following parameter values. Each change should be considered independently. Confirm that the value of the option changes in agreement with the prediction of Table 23.4.
i. Time to expiration 2 years
ii. Standard deviation 50% per year
iii. Exercise price $60
v. Stock price $60
vi. Interest rate 6%
c. In which case did increasing the value of the input not increase your calculation of option value?
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Value of the call option using Excel Spreadsheet Solution is 877 a INPUTS OUTPUTS FORMULA FOR OUTPUT IN COLUMN E Standard deviation annual 04000 PVEx ...View the full answer
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Related Book For 
Fundamentals of Corporate Finance
ISBN: 978-1259722615
9th edition
Authors: Richard Brealey, Stewart Myers, Alan Marcus
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