Question: A 3 month call option is trading with an exercise price of US$50.The current price of the underlying stock is US$60.The risk free rate is

A 3 month call option is trading with an exercise price of US$50.The current price of the underlying stock is US$60.The risk free rate is 7% compounded continuously and the variance of the stock price return is 14.4%.

Required:

1.What is the intrinsic value of this call option?

2.Based on the Black Scholes model what is the total value of this call option?

3. what accounts for the difference between the total value and the intrinsic value?

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