I.M.Greedy has been granted options on 500,000 shares.The stock is currently trading at $48 a share and the options are at the money.The standard deviation of returns averages 31 percent.The options mature in 5 years and the risk-free rate is 3.68 percent.What is the value of e⁻^Rt? A).6087 B).7087 C).7952 D).8476 E).8319

Question

Quizplus · Accepted Answer

The expression e⁻^Rt is a component of the Black-Scholes model, which is used to calculate the value of options. The correct answer involves understanding and applying the Black-Scholes formula, which requires inputs such as the current stock price (S), the strike price of the option (X), the time to expiration (T), the risk-free rate (r), and the volatility of the stock's returns (σ). However, the given expression and the values provided in the question do not directly lead to a calculation without applying the full Black-Scholes formula. The correct answer (E) likely comes from a specific calculation or approximation related to the Black-Scholes model, but without the full context or the exact formula being applied, it's not possible to provide a detailed explanation based solely on the information given. The value of 8319 suggests a specific outcome from such a calculation.

IMGreedy Has Been Granted Options on 500,000 Shares