Problem 8-3 Black-Scholes Model

Assume that you have been given the following information on Purcell Industries:

Current stock price = $16	Strike price of option = $11
Time to maturity of option = 4 months	Risk-free rate = 8%
Variance of stock return = 0.14
d1 = 1.965949	N(d1) = 0.975348
d2 = 1.749924	N(d2) = 0.959934

According to the Black-Scholes option pricing model, what is the option's value? Round your answer to the nearest cent.

Binomial Model

The current price of a stock is $16. In 6 months, the price will be either $20 or $11. The annual risk-free rate is 5%. Find the price of a call option on the stock that has an strike price of $14 and that expires in 6 months. (Hint: Use daily compounding.) Round your answer to the nearest cent. Assume a 365-day year. Do not round your intermediate calculations.