Complete the following table using the following information:

• Column 1 reports six strike prices $150 to $175 at $5 intervals.

• Column 2 is for the closing stock price on YBM, $160.

• Column 3 is for the risk-free interest rate r = 10 percent per year.

• Column 4 is for the time to maturity, which is twenty days (20/265 = 0.054795 years).

• Column 5 reports European call option prices from the market.

• Column 6 reports the implied volatility that you need to calculate.

Comment on what this implies about the validity of the Black–Scholes–Merton model?

Transcribed Image Text:

150 155 160 165 170 175 Implied Volatilities CMktImplied Volatility 13.00 8.00 3.75 1.00 0.20 0.05