14. A stock currently trading at $115 pays a $4 dividend in four months and ten...

 

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14. A stock currently trading at $115 pays a $4 dividend in four months and ten months. A call option on the stock with an intrinsic value of $9 expires in eleven months. Annualized yield for T-bill for this option is 10% and annualized standard deviation (volatility) of the continuously compounded return on the stock is 15% per annum. (8 points) (a) Compute So" (b) Compute d, and N(d.) 5 (c) Compute N(d₂) assuming d, is --3797. Use this N(d,) in part (d). (d) Compute the price of the European call. 14. A stock currently trading at $115 pays a $4 dividend in four months and ten months. A call option on the stock with an intrinsic value of $9 expires in eleven months. Annualized yield for T-bill for this option is 10% and annualized standard deviation (volatility) of the continuously compounded return on the stock is 15% per annum. (8 points) (a) Compute So" (b) Compute d, and N(d.) 5 (c) Compute N(d₂) assuming d, is --3797. Use this N(d,) in part (d). (d) Compute the price of the European call.

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