Rebecca is interested in purchasing a European call on a hot new stock, Up, Inc. The call
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Question:
Rebecca is interested in purchasing a European call on a hot new stock, Up, Inc. The call has a strike price of $99.00 and expires in 85 days. The current price of Up stock is $122.83, and the stock has a standard deviation of 35% per year. The risk-free interest rate is 6.95% per year. Up stock pays no dividends. Use a 365-day year.
a. Using the Black-Scholes formula, compute the price of the call.
b. Use put-call parity to compute the price of the put with the same strike and expiration date.
(Note:Make sure to round all intermediate calculations to at least five decimal places.)
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