Jeff is analyzing an expansion project for a new business and has developed this input for a Black-Scholes model.Stock price = $7,365,000,exercise price = $12,400,000,time period = 3 years,standard deviation = 14.5 percent,and the continuously compounded interest rate = 4.2 percent.What is the value of d₁ as it is used in the model? A).1945 B).5487 C)−1.4102 D).4593 E)−1.4470

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Quizplus · Accepted Answer

The value of d1 is calculated using the Black-Scholes formula: d1 = [ln(S/X) + (r + (σ^2)/2)T] / (σ√T). Plugging in the given values: S = 7,365,000, X = 12,400,000, r = 0.042, σ = 0.145, T = 3, we find d1 ≈ -1.4470.

Jeff Is Analyzing an Expansion Project for a New Business