An Analyst Wants to Use the Black-Scholes Model to Value

question 26

Multiple Choice

An analyst wants to use the Black-Scholes model to value call options on the stock of Ledbetter Inc. based on the following data: • The price of the stock is $40.
• The strike price of the option is $40.
• The option matures in 3 months (t = 0.25) .
• The standard deviation of the stock's returns is 0.40, and the variance is 0.16.
• The risk-free rate is 6%.
•
• Given this information, the analyst then calculated the following necessary components of the
Black-Scholes model:
•
• d1 = 0.175
• d2 = -0.025
• N(d1) = 0.56946
• N(d2) = 0.49003
N(d1) and N(d2) represent areas under a standard normal distribution function. What is the value of the call option?

• A) $2.81
• B) $3.12
• C) $3.47
• D) $3.82

---

Definitions:

Manual Dexterity

The skillful use of the hands and fingers to perform tasks with precision and speed.

Object Permanence

The realization that objects still exist even when they are not visible, audible, or tangible.

Manual Dexterity

The skillful use of the hands and fingers to perform tasks with precision, often important in various professions and daily activities.

Gross Motor Development

The progression of physical abilities involving large muscle movements such as walking, jumping, and throwing, typically observed in early childhood development.