Question: An analyst is interested to value call options on the stock of Parnes Inc. The analyst has accumulated the following information: The price of the

An analyst is interested to value call options on the stock of Parnes Inc. The analyst has accumulated the following information:

  • The price of the stock is $40.
  • The strike price is $40.
  • The option matures in 3 months.
  • The standard deviation of the stocks returns is 0.40.
  • The risk-free rate is 12 percent per year.

Using the Black-Scholes model, what is the value of the call option?

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