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 $100 and the strike price on the option is $80.The expiration date is 9 months from now and the risk-free rate applicable is 8% per annum.If the standard deviation on the returns on the stock is 50%,what is the price of a single call option?

Question

Quizplus · Accepted Answer

S = 100,X = 80,t = .75,r = .08,sigma =.5
Using the Black-Scholes Formula C = SN(d1)- Xexp(-rt)N(d2)
where d1 = {ln(S/X)+ (r + (sigma^2)/2))t}/(sigma ´ (.75^2)),d2 = d1 -(sigma ´ (.75^2))
d1 = 0.87040 ====> N(d1)= 0.807959
d2 = 0.43739 ====> N(d2)= 0.669084
C = 30.39

You Need to Find the Price of a European Call