Question: 5-5: The Black-Scholes Option Pricing Model (OPM) Problem 5-3 Black-Scholes Model Assume that you have been given the following information on Purcell Industries: Current stock

5-5: The Black-Scholes Option Pricing Model (OPM)

Problem 5-3 Black-Scholes Model

Assume that you have been given the following information on Purcell Industries:

Current stock price = $15 Strike price of option = $14
Time to maturity of option = 6 months Risk-free rate = 8%
Variance of stock return = 0.11
d1 = 0.582008 N(d1) = 0.719719
d2 = 0.347487 N(d2) = 0.635887

According to the Black-Scholes option pricing model, what is the option's value? Round your answer to the nearest cent.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Q:

5. x Check My Wor 5-5: The Black-Scholes Option Pricing Model (OPM) 6. Problem Walk-Through Problem 5-5 Black-Scholes Model 7. Use the Black-Scholes model to find the price for a call option with the...

Q:

Assume that you have been given the following information on Purcell Industries: Current stock price = $15 Strike price of option = $15 Time to maturity of option = 6 Months Risk-free rate = 6%...

Q:

The question in full: (the part that is highlighted in bold is the one we need to answer) Assume you have just been hired as a business manager of PizzaPalace, a regional pizza restaurant chain. The...

Q:

Assume you have just been hired as a business manager of PizzaPalace, a regional pizza restaurant chain. The companys EBIT was $120 million last year and is not expected to grow. PizzaPalace is in...

Q:

Option analysis involves gathering significant amounts of information, synthesizing the data, and using the data in models applied in option analysis Budger Inc. is considering a project for a new...

Q:

Option analysis involves gathering significant amounts of information, synthesizing the data, and using the data in models applied in option analysis. Budget Corp. is considering a project for a new...

Q:

Budget Corp. is considering a project for a new cloud-based online storage system for companies and individuals to back up their data. The cost of the project is $55 million, but the future cash...

Q:

Option analysis involves gathering significant amounts of information, synthesizing the data, and using the data in models applied in option analysis. Budget Corp. is considering a project for a new...

Q:

Option analysis involves gathering significant amounts of information, synthesizing the data, and using the data in models applied in option analysis, Consider the case of RTE Com Inc.: RTE Com Inc....

Q:

Budget Corp. is considering a project for a new cloud-based online storage system for companies and individuals to back up their data. The cost of the project is $50 million, but the future cash...

Q:

To increase its market share, Sole Brother Inc. decided to borrow $5000 from its banker for the purchase of newspaper advertising for its shoe retail line. The loan is to be paid in four equal annual...

Q:

Goodwin Corp. has revenues of $12,112,659, costs of $9,080,545, interest payments of $412,375, and a tax rate of 34 percent. It paid dividends of $1,025,000 to its stockholders. What are the firm's...

Q:

Question 1 4 An investor purchases a semiannual bond that has 1 0 years until maturity. How many periods ( N ) are there for this bond? 2 0 1 0 6 0 1 2 0 Not saved 1 7 Mal - 1 1 6

Q:

Which of the following are problems with identifying users of ABC? Multiple select question. ABC means different things to different organizations. Organizations will announce the discontinuance of...

Q:

General Purpose of Your Speech Analyzing Your Audience

Q:

Describe the power of public speaking and how preparation eases natural nervousness Identify the purpose of your speech Conduct audience analysis

Q:

Ethical Speaking: Taking Responsibility for Your Speech?