Question: 18-10 OPTION PRICING MODELS a. Rework problem 18-4 using the spreadsheet model. b. Construct data tables for the intrinsic value and Black-Scholes exer- cise value

18-10 OPTION PRICING MODELS

a. Rework problem 18-4 using the spreadsheet model.

b. Construct data tables for the intrinsic value and Black-Scholes exer- cise value for this option and graph the relationship. Include possible stock price values ranging up to $30.

c. Suppose this call option is purchased today. Draw the profit diagram of this option position at expiration.

d. At the end of the 6 months, the firm's stock will be worth $20 or $40. Given the following information, create a riskless hedge to determine the value of the firm's call option given the following information: Current stock price = $25 Option expiration = 6 months Exercise price = $30 Risk-free rate=5%

e. What is the value of the firm's call option in part d?

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