Apply the Black-Scholes Formula to the Pricing of a 6-Month

question 101

Multiple Choice

Apply the Black-Scholes formula to the pricing of a 6-month call option with an exercise price of $98 on a stock with a current price of $98.The standard deviation of the annual stock return is 32%.The 6-month interest rate is 2.5%.

• A)$9.96
• B)$8.11
• C)$7.47
• D)$10.45

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Definitions:

HAc

A shorthand notation for acetic acid, a colorless liquid organic compound with the chemical formula CH3COOH.

K

Symbol for Potassium, a soft, silvery-white metallic element essential for plant growth and human nutrition.

M

In the context of concentration, M stands for molarity, a measure of the concentration of a solute in a solution, defined as moles per liter.

Equilibrium Reaction

A chemical reaction in which the forward and reverse reactions occur at the same rate, so that the concentrations of the reactants and products do not change with time.