Suppose that you were an “A” student who did not make math mistakes and you applied the Black-Scholes formula to find the price of a one-year call option on the stock that you had been tracking all semester in your Corporate Finance class. The Black-Scholes formula gave an answer of $7, but you then looked on finance.Yahoo.com and saw that one-year calls with the same exercise price were trading at $8.

Give 3 reasons that could explain why the traded price was higher.

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Difference in expectations of the parameters ... View the full answer