Use the Black-Scholes formula for calculations and show your steps. When evaluating N(z), use the values...

  

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Use the Black-Scholes formula for calculations and show your steps. When evaluating N(z), use the values in the attached N(z) table. a. What is the price of a $35 strike European call? Assume the current stock price is $38.50, the annual volatility is 0.25, the annualized continuously compounding interest rate is 6%, the stock pays no dividend, and the option expires in 45 days (assume 365 days a year). (6') b. What is the price of a $30 strike European put? Assume the current stock price is $28.50, the annual volatility is 0.32, the annualized continuously compounding interest rate is 0.04, the stock pays a 1.0% continuous dividend, and the option expires in 110 days. (Assume 365 days a year). (6¹) c. Interpret the N(d₁) values you obtained in a. and b. (3') Table 1: Table of the Standard Normal Cumulative Distribution Function Þ(z) 0.00 0.01 0.06 0.02 0.03 0.0003 0.0003 0.0003 0.0003 0.0005 0.0005 0.0005 0.0004 0.0007 0.0006 0.04 0.05 0.0003 0.0003 0.0003 0.0004 0.0006 0.0007 0.0006 0.0009 0.0010 0.0009 0.0009 0.0008 0.0008 0.0013 0.0013 0.0013. 0.0012 0.0012 0.0011 z -3.4 -3.3 -3.2 -3.1 -3.0 -2.9 20 -2.8 -2.7 -2.6 -2.5 -2.4 -2.3 -2.2 -2.1 -2.0 24.0 -1.9 -1.5 -1.8 -1.7 -1.6 TE -1.5 → -1.4 -1.3 -1.2 -1.1 -1.0 -1.0 -0.9 -0.8 -0.7 -0.6 -0.5 -0.4 -0.3 -0.2 02 -0.1 -0.0 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1.1 1.2 12 1.3 11 1.4 1.5 1.6 1.7 1.8 10 1.9 2.6 2.0 2.7 2.1 2.8 2.0 2.9 2.3 3.0 3.1 3.2 3.3 3.4 0.0019 0.0018 0.0026 0.0025 0.0035 0.0021 0.0034 0.0017 0.0047 0.0018 0.0017 0.0016 0.0016 0.0024 0.0023 0.0023 0.0022 0.0033 0.0032 0.0021 0.0031 0.0030 0.0044 0.0043 00041 0.0040 0.0059 0.0059 0.0057 0.0055 0.0054 0.0082 0.0080 0.0078 0.0075 0.0073 0.0071 0.0102 0.0099 0.0096 0.0094 0.0122 0.0132 0.0129 0.0125 0.0170 0.0166 0.0162 0.0158 0.0202 0.0202 0.0197 0.0192 0.0192 0.0256 0.0250 0.0244 0.0307 0.0015 0.0045 0.0062 0.0060 0.0107 0.0104 0.0139 0.0136 0.0179 0.0174 0:011 0.0228 0.0222 0.0220 0.0287 0.0359 0.0000 0.0217 0.0222 0.0241 0.0212 0:0416 0.0281 0.0274 0.0268 0.0351 1.0991 0.0427 0026 0.0537 0.0526 0.0516 OOGEE 0.0613 0.0655 0.0643 OROD 0.0793 0.0446 0.0436 0.0940 0.0450 0.0548 0.0668 0 0630 0.0630 0.0778 0.0764 0.0808 0.0968 0.0951 0.0934 0.0918 1101 0.1151 0.1131 0.1112 0.1093 0.1357 0.1335 0.1314 0.1292 0.1515 0.1587 0.1562 0.1539 1.1962 0.1959 0.1901 0.1814 0.1788 0.1762 0.1736 1.1014 0.1841 0.2061 0.2119 0.2090 1.6118 0.2420 0.0344 COOLT 0.2389 0700 0742 0.2743 0.2709 0.3085 0.3050 0 2050 0.0336 .0530 0.2358 0.2676 0.3015 0.8413 0.8438 0.0410 0.0418 0.0410 0.2033 2099 0.8461 1.0490 0.0401 0.8665 0.8686 0.6628 10:0040 0.6985 0.7019 0.0207 00000 0.0262 0.6664 0:0004 0.7910 0.7939 0.7967 0000 0.8238 0100 0.8186 FOLOO 0.8212 0.3446 0.3409 0.3372 0.3821 0.3783 0.3745 0.4207 0.4168 1168 0.4129 0.4602 0.4562 0.4522 0.3336 0.3300 0.3707 0.3669 0.4090 0.4052 0.4483 0.4443 0.5000 0.4960 0.4920 0.4880 0.4840 0.5000 0.5040 0.5080 0.5120 0.5160 0.5398 0.5438 0.5478 0.5517 0.5557 0.5793 0.5832 0.5948 0.6179 0.5871 0.5910 0.6217 0.6255 0.6293 0.6331 0.6554 0.6700 0.7054 FORG 0.6591 0.6915 0.6950 0.6950 0.7257 0.7291 OFERO 0.7580 0.7611 0.7642 FORS 2010 0.7881 0.7324 0.7357 0.7389 0.7642 *1991 0.8159 0.07 0.0003 0.0004 0.0004 0.0004 0.0006 0.0006 0.0005 0.0008 0.0008 0.0011 0.0409 0.0409 0.0505 0.0401 0.0401 0.0322 0.0329 0:0529 1.0924 0.1469 1:1409 0.1711 0.0015 0.0015 0.0021 0.0029 0.0029 0.0039 0.0039 0.0052 0.0495 00000 0.0606 0.0618 0.0749 0.0901 0.1075 0.1271 0.1492 0.1492 0.6736 0:0790 0.7088 0.1068 0.7422 REG 0.7673 0.7704 0.7734 7067 0000 0.7995 0.8023 0.8264 9290 0.8289 0.0029 0.0038 0.0051 0.0069 0.0068 0.0091 0.0119 0.0154 0.0014 0.0314 CORDE 0.0735 0.0721 0.0885 0.0869 0.1056 0.1038 0.1251 0.1230 0.8531 0.0001 0.8749 0.1089 0.1685 0.2005 0.1977 0.1949 0.0501 0.0594 0.0392 0.0082 0.0485 0.0475 0.1446 BOTEZRO 0.0005 0.0007 0.0011 0.0010 0.0014 0.0021 0.0020 0.0029 0.0028 0.0027 0.6772 0.0172 0.2327 0.0643 0.2643 0.2611 0.2981 0.2946 0.2296 0.2266 -2290 1:2200 0.2578 0.2912 0.3264 0.3228 0.3192 0.3156 0.3632 0.3594 0.3557 0.3520 0.4013 0.3974 0.3936 0.3897 0.4325 0.4286 0.4761 0.4721 0.4681 0.4404 0.4364 0.4801 0.5199 0.5596 0.5636 0.5675 0.5987 0.6026 0.6064 0.6368 0.5239 0.5279 0.5319 0.0037 0.0049 0.0066 0.0089 0.0087 0.0116 0.0113 0.0150 0.0146 0.0188 0.0239 0.0301 0.0001 0.0384 0.000 0.7125 0.7123 COFFE 0.8554 0.0004 0.08 0.0003 0.0004 0.1423 1420 0.1660 OERO 0.0582 0.0571 0.0708 0.0694 0.0853 0.0838 0.1020 0.1003 0.1210 0.1190 0.0375 0.0579 0.0465 0.2236 0 DE AG 0.2546 0.2877 0.2843 0.2810 00514 0.2514 0.1401 0.1401 0.1922 0.1894 9.1944 0.1007 0.2206 0.2177 Det 0.2483 0.1635 0.105 0.5714 0.6103 0.6406 0.6443 0.6480 0.8078 0010 0.7157 0.7454 0.7486 0.7517 FRO 0.7764 0.7794 0.7823 GOOFS 0.8051 0.001 0.8315 0.6808 0.6844 0.0044 0.7190 0.7190 0.8106 0.8340 0.8365 5040 0.09 0.0002 0.0003 0.0005 0.0007 0.0010 0.8485 0.8508 .0400 0.8643 0.8708 0.8729 0.8577 0.8599 F90!! 0.0099 0.8770 0.8790 0.8810 08080 00010 0 2999 0.9860 2060 0.8849 0.8869 0.8888 0 2007 0.8907 08011 0.8925 0.8962 0.9131 0.9147 0.9162 0.9279 0.9292 0.9306 0.9406 0.9418 0.9429 0.8944 0.9032 0.9049 0.9066 0.9082 0.9099 0.9115 0.9192 0.9207 0.9222 0.9236 0.9251 0.9265 0.9332 0.9345 0.9357 0.9370 0.9382 0.9394 0.9452 0.9463 0.9474 0.9484 0.9495 0.9505 0.9554 0.9564 0.9573 0.9582 0.9591 0.9599 0.9641 0.9649 0.9656 0.9664 0.9671 0.9678 0.0712 0714 0.9744 Dies 0.9515 0.9525 0.9535 0.9608 0.9616 0.9625 0000 0.0761 0.9713 0.9719 0.9726 0.9732 0.9738 De 0.9686 0.9693 0.9699 0.9750 0.9756 0.9761 0.9803 0.9808 0.9812 0.9817 0.9612 2.0 0.9772 0.9778 0.9783 0.9788 0.0050 2.1 0921 0.9821 0.9826 0.9846 0.9850 0.9854 0.9857 2.2 22 0.9861 0.9864 0.9878 0.9881 0.9887 0.9890 0.9881 0.9884 0 9911 0.0000 0.9909 0.9911 0.9913 0.9932 0.9934 2.5 0.9949 0.9951 0.9962 0.9963 0.9793 0.9798 0.0980 0040 0.9830 0.9834 0.9838 0.9842 0.9868 0.9868 0.9871 0.9871 0.9875 2.3 23 0.9893 0.9896 0.9898 0.9898 0.9901 0.0001 0.9906 0.9904 2.4 0.9918 0.9920 0.9922 0.9925 0.9927 0.9929 0.9931 2.5 0.9938 0.9940 0.9941 0.9943 0.9945 0.9946 0.9948 0.9953 0.9956 0.9955 0.9957 0.9959 0.9960 0.9961 0.9965 0.9966 0.9967 0.9968 0.9969 0.9970 0.9971 0.9972 0.9972 0.9974 0.9975 0.9976 0.9977 0.9977 0.9978 0.9979 0.9979 0.9981 0.9982 0.9982 0.9983 0.9984 0.9984 0.9985 0.9985 0.9964 0.99€ 0.9987 0.9988 0.9988 0.9989 0.9989 0.9989 0.9990 0.9991 0.9991 0.9991 0.9992 0.9992 0.9992 0.9993 0.9993 0.9994 0.9994 0.9994 0.9994 0.9994 0.9995 0.9995 0.9995 0.9995 0.9996 0.9996 0.9996 0.9996 0.9996 0.9996 0.9997 0.9997 0.9997 0.9997 0.9997 0.9997 0.9997 0.9997 0.9987 0.9987 0.9992 0.9993 0.9995 0.9997 0.9973 0.9980 0.9986 0.9990 0.0014 0.0019 0.0026 0.0026 0.0036 0.0048 0.0064 0.0084 0.0110 0.0143 0.0183 0:0109 0.0233 0.0294 0.0494 0.0367 0.0455 0.0559 0.0681 0.0823 0.0985 0.1170 0.1379 1919 0.1611 ·1011 0.1867 0.2148 0.4120 0.2451 0.2776 0.3121 0.3483 0.3859 0.4247 0.4641 0.5359 0.8133 0 2290 0.8389 0.8621 0.8830 0.8980 0.8997 0.9015 2007 0.9177 0.5753 0.6141 0.6517 0.6879 0.7224 0.7549 0.7852 0.9319 0.9441 0.9545 0.9633 0.9706 0.9767 0.9916 0.9936 0.9952 0.9964 0.9974 0.9981 19001 0.9986 9900 0.9990 0.9993 0.9995 0.9997 0.9998 Use the Black-Scholes formula for calculations and show your steps. When evaluating N(z), use the values in the attached N(z) table. a. What is the price of a $35 strike European call? Assume the current stock price is $38.50, the annual volatility is 0.25, the annualized continuously compounding interest rate is 6%, the stock pays no dividend, and the option expires in 45 days (assume 365 days a year). (6') b. What is the price of a $30 strike European put? Assume the current stock price is $28.50, the annual volatility is 0.32, the annualized continuously compounding interest rate is 0.04, the stock pays a 1.0% continuous dividend, and the option expires in 110 days. (Assume 365 days a year). (6¹) c. Interpret the N(d₁) values you obtained in a. and b. (3') Table 1: Table of the Standard Normal Cumulative Distribution Function Þ(z) 0.00 0.01 0.06 0.02 0.03 0.0003 0.0003 0.0003 0.0003 0.0005 0.0005 0.0005 0.0004 0.0007 0.0006 0.04 0.05 0.0003 0.0003 0.0003 0.0004 0.0006 0.0007 0.0006 0.0009 0.0010 0.0009 0.0009 0.0008 0.0008 0.0013 0.0013 0.0013. 0.0012 0.0012 0.0011 z -3.4 -3.3 -3.2 -3.1 -3.0 -2.9 20 -2.8 -2.7 -2.6 -2.5 -2.4 -2.3 -2.2 -2.1 -2.0 24.0 -1.9 -1.5 -1.8 -1.7 -1.6 TE -1.5 → -1.4 -1.3 -1.2 -1.1 -1.0 -1.0 -0.9 -0.8 -0.7 -0.6 -0.5 -0.4 -0.3 -0.2 02 -0.1 -0.0 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1.1 1.2 12 1.3 11 1.4 1.5 1.6 1.7 1.8 10 1.9 2.6 2.0 2.7 2.1 2.8 2.0 2.9 2.3 3.0 3.1 3.2 3.3 3.4 0.0019 0.0018 0.0026 0.0025 0.0035 0.0021 0.0034 0.0017 0.0047 0.0018 0.0017 0.0016 0.0016 0.0024 0.0023 0.0023 0.0022 0.0033 0.0032 0.0021 0.0031 0.0030 0.0044 0.0043 00041 0.0040 0.0059 0.0059 0.0057 0.0055 0.0054 0.0082 0.0080 0.0078 0.0075 0.0073 0.0071 0.0102 0.0099 0.0096 0.0094 0.0122 0.0132 0.0129 0.0125 0.0170 0.0166 0.0162 0.0158 0.0202 0.0202 0.0197 0.0192 0.0192 0.0256 0.0250 0.0244 0.0307 0.0015 0.0045 0.0062 0.0060 0.0107 0.0104 0.0139 0.0136 0.0179 0.0174 0:011 0.0228 0.0222 0.0220 0.0287 0.0359 0.0000 0.0217 0.0222 0.0241 0.0212 0:0416 0.0281 0.0274 0.0268 0.0351 1.0991 0.0427 0026 0.0537 0.0526 0.0516 OOGEE 0.0613 0.0655 0.0643 OROD 0.0793 0.0446 0.0436 0.0940 0.0450 0.0548 0.0668 0 0630 0.0630 0.0778 0.0764 0.0808 0.0968 0.0951 0.0934 0.0918 1101 0.1151 0.1131 0.1112 0.1093 0.1357 0.1335 0.1314 0.1292 0.1515 0.1587 0.1562 0.1539 1.1962 0.1959 0.1901 0.1814 0.1788 0.1762 0.1736 1.1014 0.1841 0.2061 0.2119 0.2090 1.6118 0.2420 0.0344 COOLT 0.2389 0700 0742 0.2743 0.2709 0.3085 0.3050 0 2050 0.0336 .0530 0.2358 0.2676 0.3015 0.8413 0.8438 0.0410 0.0418 0.0410 0.2033 2099 0.8461 1.0490 0.0401 0.8665 0.8686 0.6628 10:0040 0.6985 0.7019 0.0207 00000 0.0262 0.6664 0:0004 0.7910 0.7939 0.7967 0000 0.8238 0100 0.8186 FOLOO 0.8212 0.3446 0.3409 0.3372 0.3821 0.3783 0.3745 0.4207 0.4168 1168 0.4129 0.4602 0.4562 0.4522 0.3336 0.3300 0.3707 0.3669 0.4090 0.4052 0.4483 0.4443 0.5000 0.4960 0.4920 0.4880 0.4840 0.5000 0.5040 0.5080 0.5120 0.5160 0.5398 0.5438 0.5478 0.5517 0.5557 0.5793 0.5832 0.5948 0.6179 0.5871 0.5910 0.6217 0.6255 0.6293 0.6331 0.6554 0.6700 0.7054 FORG 0.6591 0.6915 0.6950 0.6950 0.7257 0.7291 OFERO 0.7580 0.7611 0.7642 FORS 2010 0.7881 0.7324 0.7357 0.7389 0.7642 *1991 0.8159 0.07 0.0003 0.0004 0.0004 0.0004 0.0006 0.0006 0.0005 0.0008 0.0008 0.0011 0.0409 0.0409 0.0505 0.0401 0.0401 0.0322 0.0329 0:0529 1.0924 0.1469 1:1409 0.1711 0.0015 0.0015 0.0021 0.0029 0.0029 0.0039 0.0039 0.0052 0.0495 00000 0.0606 0.0618 0.0749 0.0901 0.1075 0.1271 0.1492 0.1492 0.6736 0:0790 0.7088 0.1068 0.7422 REG 0.7673 0.7704 0.7734 7067 0000 0.7995 0.8023 0.8264 9290 0.8289 0.0029 0.0038 0.0051 0.0069 0.0068 0.0091 0.0119 0.0154 0.0014 0.0314 CORDE 0.0735 0.0721 0.0885 0.0869 0.1056 0.1038 0.1251 0.1230 0.8531 0.0001 0.8749 0.1089 0.1685 0.2005 0.1977 0.1949 0.0501 0.0594 0.0392 0.0082 0.0485 0.0475 0.1446 BOTEZRO 0.0005 0.0007 0.0011 0.0010 0.0014 0.0021 0.0020 0.0029 0.0028 0.0027 0.6772 0.0172 0.2327 0.0643 0.2643 0.2611 0.2981 0.2946 0.2296 0.2266 -2290 1:2200 0.2578 0.2912 0.3264 0.3228 0.3192 0.3156 0.3632 0.3594 0.3557 0.3520 0.4013 0.3974 0.3936 0.3897 0.4325 0.4286 0.4761 0.4721 0.4681 0.4404 0.4364 0.4801 0.5199 0.5596 0.5636 0.5675 0.5987 0.6026 0.6064 0.6368 0.5239 0.5279 0.5319 0.0037 0.0049 0.0066 0.0089 0.0087 0.0116 0.0113 0.0150 0.0146 0.0188 0.0239 0.0301 0.0001 0.0384 0.000 0.7125 0.7123 COFFE 0.8554 0.0004 0.08 0.0003 0.0004 0.1423 1420 0.1660 OERO 0.0582 0.0571 0.0708 0.0694 0.0853 0.0838 0.1020 0.1003 0.1210 0.1190 0.0375 0.0579 0.0465 0.2236 0 DE AG 0.2546 0.2877 0.2843 0.2810 00514 0.2514 0.1401 0.1401 0.1922 0.1894 9.1944 0.1007 0.2206 0.2177 Det 0.2483 0.1635 0.105 0.5714 0.6103 0.6406 0.6443 0.6480 0.8078 0010 0.7157 0.7454 0.7486 0.7517 FRO 0.7764 0.7794 0.7823 GOOFS 0.8051 0.001 0.8315 0.6808 0.6844 0.0044 0.7190 0.7190 0.8106 0.8340 0.8365 5040 0.09 0.0002 0.0003 0.0005 0.0007 0.0010 0.8485 0.8508 .0400 0.8643 0.8708 0.8729 0.8577 0.8599 F90!! 0.0099 0.8770 0.8790 0.8810 08080 00010 0 2999 0.9860 2060 0.8849 0.8869 0.8888 0 2007 0.8907 08011 0.8925 0.8962 0.9131 0.9147 0.9162 0.9279 0.9292 0.9306 0.9406 0.9418 0.9429 0.8944 0.9032 0.9049 0.9066 0.9082 0.9099 0.9115 0.9192 0.9207 0.9222 0.9236 0.9251 0.9265 0.9332 0.9345 0.9357 0.9370 0.9382 0.9394 0.9452 0.9463 0.9474 0.9484 0.9495 0.9505 0.9554 0.9564 0.9573 0.9582 0.9591 0.9599 0.9641 0.9649 0.9656 0.9664 0.9671 0.9678 0.0712 0714 0.9744 Dies 0.9515 0.9525 0.9535 0.9608 0.9616 0.9625 0000 0.0761 0.9713 0.9719 0.9726 0.9732 0.9738 De 0.9686 0.9693 0.9699 0.9750 0.9756 0.9761 0.9803 0.9808 0.9812 0.9817 0.9612 2.0 0.9772 0.9778 0.9783 0.9788 0.0050 2.1 0921 0.9821 0.9826 0.9846 0.9850 0.9854 0.9857 2.2 22 0.9861 0.9864 0.9878 0.9881 0.9887 0.9890 0.9881 0.9884 0 9911 0.0000 0.9909 0.9911 0.9913 0.9932 0.9934 2.5 0.9949 0.9951 0.9962 0.9963 0.9793 0.9798 0.0980 0040 0.9830 0.9834 0.9838 0.9842 0.9868 0.9868 0.9871 0.9871 0.9875 2.3 23 0.9893 0.9896 0.9898 0.9898 0.9901 0.0001 0.9906 0.9904 2.4 0.9918 0.9920 0.9922 0.9925 0.9927 0.9929 0.9931 2.5 0.9938 0.9940 0.9941 0.9943 0.9945 0.9946 0.9948 0.9953 0.9956 0.9955 0.9957 0.9959 0.9960 0.9961 0.9965 0.9966 0.9967 0.9968 0.9969 0.9970 0.9971 0.9972 0.9972 0.9974 0.9975 0.9976 0.9977 0.9977 0.9978 0.9979 0.9979 0.9981 0.9982 0.9982 0.9983 0.9984 0.9984 0.9985 0.9985 0.9964 0.99€ 0.9987 0.9988 0.9988 0.9989 0.9989 0.9989 0.9990 0.9991 0.9991 0.9991 0.9992 0.9992 0.9992 0.9993 0.9993 0.9994 0.9994 0.9994 0.9994 0.9994 0.9995 0.9995 0.9995 0.9995 0.9996 0.9996 0.9996 0.9996 0.9996 0.9996 0.9997 0.9997 0.9997 0.9997 0.9997 0.9997 0.9997 0.9997 0.9987 0.9987 0.9992 0.9993 0.9995 0.9997 0.9973 0.9980 0.9986 0.9990 0.0014 0.0019 0.0026 0.0026 0.0036 0.0048 0.0064 0.0084 0.0110 0.0143 0.0183 0:0109 0.0233 0.0294 0.0494 0.0367 0.0455 0.0559 0.0681 0.0823 0.0985 0.1170 0.1379 1919 0.1611 ·1011 0.1867 0.2148 0.4120 0.2451 0.2776 0.3121 0.3483 0.3859 0.4247 0.4641 0.5359 0.8133 0 2290 0.8389 0.8621 0.8830 0.8980 0.8997 0.9015 2007 0.9177 0.5753 0.6141 0.6517 0.6879 0.7224 0.7549 0.7852 0.9319 0.9441 0.9545 0.9633 0.9706 0.9767 0.9916 0.9936 0.9952 0.9964 0.9974 0.9981 19001 0.9986 9900 0.9990 0.9993 0.9995 0.9997 0.9998

Answer rating: 100% (QA)

a Price of a 35 strike European call Step 1 Calculate d1 d1 ln385035 006 02522 453650254536505 06404 ... View the full answer