In a specific wager,Pat is paid $5.00 if the price of ABC Corp.is above $85.00.Currently,ABC Corp.price is $75.00,σ = 0.25,r = 0.04,div = 0 and the wager lasts 6 months.Pat receives nothing if the price is below $85.00.What is the value of her wager?

Question

Quizplus · Accepted Answer

The wager is similar to a call option with a strike price of $85. Using the Black-Scholes model, the value of the call option can be calculated, which is approximately $1.20.

In a Specific Wager,Pat Is Paid $5