THE SOLUTION AND ANSWER TO THE PROBLEM IS IN THE PURPLE BOX. Please show in excel how to get answers mentioned in the solution. FOR EXAMPLE--- Answer to Question a for Period is 0.2668

onsider the following price data for TanCo stock in two different subperiods: ibperiod A: 168.485; 162.665; 162.545; 161.570; 160.770;157.610;157.385;157.895;161.305;162.240;157.310;156.580;157.830;155.285;150.680;155.510; 54.135;155.730;156.050;152.890;150.345;150.635 iubperiod B: 122.745; 124.730; 121.730; 120.860; 119.590;118.700;117.920;119.660;122.470;121.545;120.385;117.850;118.710;115.755;117.885;117.575; 18.515;117.885;114.840;110.840 a. For each subperiod, calculate the annualized historical measure of stock volatility that could be used in pricing an option for TanCo. In your calculations, you may assume that there are 250 trading days in a year. Do not round intermediate calculations. Round your answers to four decimal places. Period A: X Period B: X b. Suppose now that you decide to gather additional data for each subperiod. Specifically, you obtain information for a call option with a current price of $12.50 and the following characteristics: X=112;S=122.375; time to expiration =62 days; RFR=7.38%; and dividend yield =3.85%. Here the risk-free rate and dividend yields are stated on an annual basis. Use the volatility measure from Subperiod B and the Black-Scholes model to obtain the "fair value" for this call option. Based on your calculations, is the option currently priced as it should be? Assume 365 days in a year. You may use Appendix D to answer the question. Do not round intermediate calculations. Round your answer to the nearest cent. The market price of $12.50 is X than the calculated BS price. This implies that if all of the other parameters of the model are correct, the implied BS volatility is X than the historical volatility. a. The volatility estimates are calculated as: Period A: 0.2668 Period B: 0.2630 Annualized 250 trading Call option is $12.30. The market price of $12.50 is higher than the calculated BS price. This implies that, if all of the other parameters of the model are correct, the implied BS volatility is higher than the historical volatility. This could be because of recent developments in the stock. Another more controversial explanation is that implied volatilities have a riskpremium built into them such that implied volatilities are on average higher than realized historical volatilities. Note: While the calculations above show values rounded to 4 and 6 decimal places, unrounded values should be used to calculate the required values