You need to find the price of a European call option on a stock that does not pay dividends.The current price of the shares are $50 and the strike price on the option is $50.The expiration date is 3 months from now and the risk-free rate applicable is 10% per annum.If the standard deviation of the returns on the stock is 20%,what is the price of a single call option?

Question

Quizplus · Accepted Answer

S = 50,X = 50,t = .25,r = .1,sigma =.2
Using the Black-Scholes Formula C = SN(d1)- Xexp(-rt)N(d2)
where d1 = {ln(S/X)+ (r + (sigma^2)/2))t}/(sigma ´ (.25^2)),d2 = d1 -(sigma ´ (.25^2))
d1 = .3 ====> N(d1)= 0.617911
d2 = .2 ====> N(d2)= 0.57926
C = 2.65

You Need to Find the Price of a European Call