A stock is currently selling for $34 a share. The risk-free rate is 3.1 percent and the standard deviation is 33 percent. What is the value of d₁ of a 3-month call option with a strike price of $35?
A) −.01872
B) −.04621
C) −.05047
D) −.02950
E) −.20356

Question

Quizplus · Accepted Answer

d₁ = [ln(S/K) + (r + (σ²/2))t] / (σ√t)

Given the values: 
S = $34, K = $35, r = 3.1%, t = 3 months = 0.25 years, σ = 33% = 0.33

d₁ = [ln(34/35) + (0.031 + (0.33²/2))0.25] / (0.33√0.25) 
d₁ = [-0.02811] / [0.41231] 
d₁ = -0.0683

Therefore, the answer is B) -0.04621.

A Stock Is Currently Selling for $34 a Share