Partially Correct Post Submission Feedback Solution a. One way is to calculate approximate dividend yield: approximate annual dividend yield = 8/79 = 0.1013 Computing Black-Scholes Curr X t Std Dev Var Price Yield 79 71 0.10 0.25 0.30 0.09 0.1013 D1 = 0.784677 N(D1) 0.783678 D2 = 0.634677 N(D2) 0.737180 Call option is $9.32. b. Using put-call parity P = C-S+ PV(D) + PV(X ) P = $9.32 - $79.00 + ($71.00+$2.00)e(-(0.10)0.25) P = $1.51 c. Computing Black-Scholes Curr X Std Dev Var Div Price Yield 79 71 0.10 0.25 0.30 0.09 0.0000 D1 = 0.953453 N(D1) 0.829820 D2 = 0.803453 N(D2) 0.789143 Call option is $10.91. So, the price would increase: $1.59 d. A decrease in the volatility to 15% would decrease the call's value. A decrease in the risk-free rate to 9% would decrease the call's value. Note: While the calculations above show values rounded to 2, 4, 6 decimal places, unrounded values should be used to calculate the required values.Problem 16-04 Consider the following questions on the pricing of options on the stock of ARB Inc.: a. A share of ARB stock sells for $79 and has a standard deviation of returns equal to 30% per year. The current risk-free rate is 10% and the stock pays two dividends: (1) a $2 dividend just prior to the option's expiration day, which is 91 days from now (i.e., exactly one-quarter of a year), and (2) a $2 dividend 182 days from now (i.e., exactly one-half year). Calculate the BIackScholes value for a 91-day European-style call option with an exercise price of $71. Use the modifyed model that assumes the dividend yield is paid continuously. You may use Appendix D to answer the question. Do not round intermediate calculations. Round your answer to the nearest cent. == Correct Responas 9.39 $ - 9.32 b. What would be the pride of a 91day European-style put option on ARB stock having the same exercise price? Do not round intermediate calculations. Round your answer to the nearest cent. - 931 n s $ 1.50 c. Calculate the change in the call option's value that would occur if ARB's management suddenly decided to suspend dividend payments and this action had no answer the question. Do not round intermediate calculations. Round your answer to the nearest cent. The price would by $ 1.50 d. Briey describe (without calculations) how your ansvI - 1.59 . 1.60 ecrease in the risk-free rate to 9% would the call's value. A decrease in the volatility to 15% would decrease he company's stock. You may use Appendix D to er under the following sepamte circumstances: (1) the volatility of ARB stock decreases to 15%, and (2) the risk-free late decreases to 9%. \fProblem 16-04 Consider the following questions on the pricing of options on the stock of ARB Inc.: a. A share of ARB stock sells for $78 and has a standard deviation of returns equal to 25% per year. The current risk-free late is 8% and the stock pays two dividends: (1) a $3 dividend just prior to the option's expimtion day, which is 91 days from now (i.e., exactly one-quarter of a year), and (Z) a $3 dividend 182 days from now (i.e., exactly one-half year). Calculate the BIackScholes value for a 91-day European-style call option with an exercise price of $73. Use the modifyed model that assumes the dividend yield is paid continuously. You may use Appendix D to answer the question. Do not round intermediate calculations. Round your answer to the nearest cent. $ b. What would be the pride of a 91-day European-style put option on ARB stock having the same exercise price? Do not round intermediate calculations. Round your answer to the nearest cent. $ c. Calculate the change in the call option's value that would occur if ARB's management suddenly decided to suspend dividend payments and this action had no effect on the price of the company's stock. You may use Appendix D to answer the question. Do not round intermediate calculations. Round your answer to the nearest cent. The price would by $ d. Briey describe (without calculations) how your answer in Part a would differ under the following sepamte circumstances: (1) the volatility of ARB stock increases to 40%, and (2) the risk-free rate increases to 9%. An increase in the volatility to 40% would the call's value. An increase in the risk-free late to 9% would the call's value. Continue without saving