Assume you are being granted at-the-money stock options today when the stock is trading at $32 a share.These options mature in one year,the continuously compounded risk-free rate is 4.2 percent,and the volatility of the stock's returns is 22 percent.What is the value of d₂ as it is used in the Black-Scholes model? A).0927 B).0752 C).0809 D).0847 E).0936

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Quizplus · Accepted Answer

Using the Black-Scholes model, the value of d1 can be calculated as: d1 = [ln(S0/K) + (r + ( σ^2 / 2)t] / (σ√t) = [ln(32/32) + (0.042 + (0.22^2 / 2) * 1] / (0.22√1) = 0.2752 And the value of d2 can be calculated as: d2 = d1 - σ√t = 0.2752 - (0.22√1) = 0.0809 Therefore, the value of d₂ is equal to d2, which is 0.0809. So, the correct choice is C).

Assume You Are Being Granted At-The-Money Stock Options Today When