Assume that the current price of DEY share is $27.50,that a 6-month call option on the share has a strike or exercise price of $25.50,the risk free rate is 4%,and that you have calculated N(d1)as .5476 and N(d2)as .4432.Use the Black-Scholes model to calculate the price of the option.

Question

Quizplus · Accepted Answer

To calculate the price of the call option using the Black-Scholes model, we use the following formula: 
C = S*N(d1) - X*e^(-rt)*N(d2)

where:
S = current price of the stock = $27.50
X = exercise price of the option = $25.50
r = risk-free rate = 4% = 0.04
t = time to expiration in years = 0.5 years
N(d1) = 0.5476
N(d2) = 0.4432

Substituting these values into the formula:
C = $27.50*0.5476 - $25.50*e^(-0.04*0.5)*0.4432
C = $15.05 - $24.20*0.4432
C = $15.05 - $10.73
C = $4.32

Therefore, the price of the option is $4.32. The closest answer choice is B) $4.20.

Assume That the Current Price of DEY Share Is $27