The Black-Scholes price of a three-month 50-strike put option is $0.75.The stock is trading at $49.Given an interest rate of 2%,and no dividends,what is the implied volatility of the stock extracted from this option?

Question

Quizplus · Accepted Answer

Using the Black-Scholes formula, we can solve for the implied volatility as follows:

S = 49
K = 50
r = 2% (expressed as 0.02)
T = 0.25 (three months, expressed as a fraction of a year)
C = 0.75

Using a Black-Scholes calculator or spreadsheet, we can solve for the implied volatility, which turns out to be approximately 0.77. Therefore, the correct answer is C).

The Black-Scholes Price of a Three-Month 50-Strike Put Option Is