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

Question

Quizplus · Accepted Answer

d₁ = 11eaaae8_8b44_1198_a4b8_5f8c71719260_TB6474_11 = 0.1061 d₂ = 0.1061 - 0.25 × 11eaaae8_8b44_1199_a4b8_07d7bd9e6507_TB6474_11 = -0.0057 N(d₁) = 0.5422 N(d₂) = 0.4977 Put value = Xe-rt[1 - N(d₂)] - S0[1 - N(d₁)] = (70)e-(0.1)(0.2)(1 - 0.4977) - (69)(1 - 0.5422) = $2.88

The Current Stock Price of National Paper Is $69, and the Stock