A stock is currently selling for $55 a share. The risk-free rate is 4 percent and the standard deviation is 18 percent. What is the value of d₁ of a 9-month call option with a strike price of $57.50?

Question

Quizplus · Accepted Answer

Using the Black-Scholes option pricing model: d1 = [ln(55/57.50) + (0.04 + 0.18^2/2)(0.75)] / (0.18√0.75) = -0.2291 d2 = -0.2291 - 0.18√0.75 = -0.7287 N(d1) = 0.4112 N(d2) = 0.2314 Therefore, d₁ = [57.50 × e^(-0.04×0.75) × 0.2314] - [55 × 0.4112] = -0.01477

A Stock Is Currently Selling for $55 a Share