Assume a Stock Price of $34

question 22

Multiple Choice

Assume a stock price of $34.80, an exercise price of $35, nine months to expiration, risk-free rate of 2.40 percent, standard deviation of 57 percent, and a d₁ value of .27167. What is the value of d₂ as it is used in the Black-Scholes option pricing model?

• A) −.22196
• B) −.18657
• C) −.18241
• D) −.27427
• E) −.22238

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Definitions:

Marketing Loan Program

A federal farm subsidy under which certain farmers can receive a loan (on a per-unit-of-output basis) to plant a crop and then, depending on the harvest price of the crop, either pay back the loan with interest or keep the loan proceeds while forfeiting their harvested crop to the lender.

Loan Price

The total financial cost of borrowing, including interest rates and any additional fees charged by the lender.

Crop Price

The market value at which a crop is traded, determined by supply and demand factors.

Countercyclical Payments

These are payments made by the government to producers, primarily in the agriculture sector, to buffer them against falling market prices and to support income stability across economic cycles.