A stock is priced at $33.25. The stock has call options with an exercise price of $35 that expire in 60 days. The underlying stock price volatility is 39 percent per year and the annual risk-free rate is 4.5 percent. According to the Black-Scholes option pricing model,what is the most you should be willing to pay for this call option?

Using the Normsdist function in Excel to find N(dx)
C0 = ($33.25 × 0.42131)- [$35e−0.045(60/365)× 0.3607]= $1.4781 or $147.81 per contract

Question

A stock is priced at $33.25. The stock has call options with an exercise price of $35 that expire in 60 days. The underlying stock price volatility is 39 percent per year and the annual risk-free rate is 4.5 percent. According to the Black-Scholes option pricing model,what is the most you should be willing to pay for this call option?  
  
Using the Normsdist function in Excel to find N(dx)
C0 = ($33.25 × 0.42131)- [$35e−0.045(60/365)× 0.3607]= $1.4781 or $147.81 per contract

Quizplus · Accepted Answer

The Answer of A stock is priced at $33.25. The stock has call options with an exercise price of $35 that expire in 60 days. The underlying stock price volatility is 39 percent per year and the annual risk-free rate is 4.5 percent. According to the Black-Scholes option pricing model,what is the most you should be willing to pay for this call option?  
  
Using the Normsdist function in Excel to find N(dx)
C0 = ($33.25 × 0.42131)- [$35e−0.045(60/365)× 0.3607]= $1.4781 or $147.81 per contract

A Stock Is Priced at $33