A stock is currently priced at $50. The stock will never pay a dividend. The risk-free rate
Question:
A stock is currently priced at $50. The stock will never pay a dividend. The risk-free rate is 12 percent per year, compounded continuously, and the standard deviation of the stock’s return is 60 percent. A European call option on the stock has a strike price of $100 and no expiration date, meaning that it has an infinite life. Based on Black-Scholes, what is the value of the call option? Do you see a paradox here? Do you see a way out of the paradox?
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Related Book For
Fundamentals Of Corporate Finance
ISBN: 9781265553609
13th Edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
Question Posted: