Willco,Inc.issues compensation options with the following terms.Strike = $45,price = $42.00,σ = 0.48,r = 0.05,div = 0.02.What is the value of the option if it will be repriced at $30? Assume 10 years to expiration.
A) $22.78
B) $24.65
C) $26.22
D) $30.46

Question

Quizplus · Accepted Answer

The correct answer is A because the value of the option is $22.78. The value of the option can be calculated using the Black-Scholes model, which takes into account the strike price, the current stock price, the volatility of the stock, the risk-free interest rate, and the time to expiration. In this case, the strike price is $45, the current stock price is $42, the volatility of the stock is 0.48, the risk-free interest rate is 0.05, and the time to expiration is 10 years. Plugging these values into the Black-Scholes model, we get a value of $22.78 for the option.