Given that d₁ = 1.50 in the Black-Scholes formula, the time to expiration of a call option is two months, the risk-free rate is 6% per year, and the standard deviation of returns on the shares underlying the call option is 20%. What is the value of d₂if the exercise price is $28 and the stock price is $31.23?

Question

Quizplus · Accepted Answer

d₂ is calculated using the formula: d₂ = d₁ - σ√T. Here, σ = 0.20 and T = 2/12. So, d₂ = 1.50 - 0.20√(2/12) = 1.42.

Given That D1 = 1

Given That D₁ = 1