Nobitha Manja Berhad (NMB) stock is currently selling at RM20. The exercise price is RM18. The...

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Nobitha Manja Berhad (NMB) stock is currently selling at RM20. The exercise price is RM18. The stock option has 120 days to expiration. The annual risk-free interest rate is 7%. The variance has been estimated to be 25% per annum. (Assume: 365 days in a year) From the above information you are required to answer the following questions: a. Calculate the value of the call option based on Black-Scholes model. (10 Marks) b. Estimate the corresponding value of put option. (7 Marks) c. Briefly explain the effect on the value of the call and put option if: i. the current stock price decreases; ii. the standard deviation of return on the stock increases; iii. the risk-free rate decreases; iv. the time to expiration increases; (8 Marks) Nobitha Manja Berhad (NMB) stock is currently selling at RM20. The exercise price is RM18. The stock option has 120 days to expiration. The annual risk-free interest rate is 7%. The variance has been estimated to be 25% per annum. (Assume: 365 days in a year) From the above information you are required to answer the following questions: a. Calculate the value of the call option based on Black-Scholes model. (10 Marks) b. Estimate the corresponding value of put option. (7 Marks) c. Briefly explain the effect on the value of the call and put option if: i. the current stock price decreases; ii. the standard deviation of return on the stock increases; iii. the risk-free rate decreases; iv. the time to expiration increases; (8 Marks)

Answer rating: 100% (QA)

a The value of the call option using the BlackScholes model is RM543 The BlackScholes model for a ca... View the full answer