Question: Let the standard deviation of the continuously compounded return on the stock is 21 percent. Ignore dividends. Respond to the following: a. What is the

Let the standard deviation of the continuously compounded return on the stock is 21 percent. Ignore dividends. Respond to the following:
a. What is the theoretical fair value of the October 165 call? Calculate this answer by hand and then recalculate it using Black-Scholes-Merton-Binomial lOe.xlsm.
b. Based on your answer in part a, recommend a riskless strategy.
c. If the stock price decreases by $1, how will the option position offset the loss on the stock?

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a S 0 16513 X 165 r c 00571 s 021 and T 02795 102 days from 76 to 1016 N021 05832 N010 0... View full answer

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