The current stock price of International Paper is $69 and the stock does not pay dividends. The instantaneous risk free rate of return is 10%. The instantaneous standard deviation of International Paper's stock is 25%. You wish to purchase a call option on this stock with an exercise price of $70 and an expiration date 73 days from now.
-Using the Black-Scholes OPM,the put option should be worth __________ today.
A) $1.50
B) $2.88
C) $2.55
D) $3.00

Question

Quizplus · Accepted Answer

The correct answer is B. The Black-Scholes OPM formula is:C = S * N(d1) - X * e^(-rT) * N(d2)where:C is the price of the call optionS is the current stock priceX is the exercise pricer is the instantaneous risk-free rate of returnT is the time to expirationσ is the instantaneous standard deviation of the stock's pricePlugging in the given values, we get:C = 69 * N(0.5244) - 70 * e^(-0.1 * 73/365) * N(0.3744)C = 69 * 0.6985 - 70 * e^(-0.02) * 0.6331C = 69 * 0.6985 - 70 * 0.9802 * 0.6331C = 48.49 - 44.61C = $2.88

The Current Stock Price of International Paper Is $69 and the Stock