The current stock price of Howard & Howard is $64, and the stock does not pay dividends. The instantaneous risk-free rate of return is 5%. The instantaneous standard deviation of H&H's stock is 20%. You want to purchase a put option on this stock with an exercise price of $55 and an expiration date 73 days from now.
Using Black-Scholes, the put option should be worth ________ today.
A) $0.01
B) $0.07
C) $9.26
D) $9.62

Question

Quizplus · Accepted Answer

d₁ = 11eaaae8_8b44_5fbc_a4b8_0932c689a816_TB6474_11 = 1.851 d₂ = 1.851 - 0.20 × 11eaaae8_8b44_5fbd_a4b8_b93532727891_TB6474_11 = 1.762 N(d₁) = 0.968 N(d₂) = 0.961 Put value = Xe-rt[1 - N(d₂)] - S0[1 - N(d₁)] = (55)e-(0.05)(0.2)(1 - 0.961) - (64)(1 - 0.968) = $0.07

The Current Stock Price of Howard & Howard Is $64