Assume a stock price of $16.80, risk-free rate of 2.7 percent, standard deviation of 59 percent, N(d₁) value of .93116, and an N(d₂) value of .85708. What is the value of a 6-month call with a strike price of $10 given the Black-Scholes option pricing model?
A) $7.62
B) $7.19
C) $8.06
D) $7.85
E) $6.97

Question

Quizplus · Accepted Answer

Using the Black-Scholes option pricing model, the value of a 6-month call with a strike price of $10 can be calculated as:

c = S*N(d₁) - K*e^(-rt)*N(d₂)
c = $16.80 * 0.93116 - $10 * e^(-0.027*0.5) * 0.85708
c = $7.19

Therefore, the answer is B.

Assume a Stock Price of $16