Luther Industries Does Not Pay a Dividend and Is Currently

question 29

Essay

Luther Industries does not pay a dividend and is currently trading at $25 per share.The current risk-free rate of interest is 5%.Calculate the price of a call option on Luther Industries with a strike price of $30 that expires in 75 days when N(d1)= .639 and N(d2)= .454.

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Definitions:

Puts

A type of option contract that gives the holder the right, but not the obligation, to sell a specified amount of an underlying asset at a predetermined price within a specific time frame.

Strike Price

The fixed price specified in an options contract at which the holder can buy or sell the underlying asset.

Black-Scholes Model

A mathematical model used for pricing European-style options, estimating the variation over time of financial instruments.

Call Option

A deal in the financial industry that bestows upon the buyer the latitude, but exempts them from the necessity, to acquire stocks, bonds, commodities, or other assets at a price fixed in advance, within a predetermined time frame.