A stock's current price S is $100.Its return has a volatility of $\sigma$ = 25 percent per year.European call and put options trading on the stock have a strike price of K = $105 and mature after T = 0.5 years.The continuously compounded risk-free interest rate r is 5 percent per year.
-The Black-Scholes-Merton model gives the price of the European put as:

Question

Quizplus · Accepted Answer

We can use the Black-Scholes-Merton formula to calculate the European put option price:

𝑑1=(ln⁡(𝑆/𝐾)+(𝑟+𝜎^2/2)𝑇)/(𝜎√𝑇)=(-0.0506)
𝑑2=𝑑1−𝜎√𝑇=−0.3021

𝑃=𝐾𝑒^(−𝑟𝑇)N(−𝑑2)−𝑆N(−𝑑1)= $8.40 (rounded to two decimal places)

Therefore, the correct answer is C.

A Stock's Current Price S Is $100 σ\sigmaσ = 25 Percent Per Year

A Stock's Current Price S Is $100 $\sigma$ = 25 Percent Per Year