Use the Black-Scholes Option Pricing Model for the Following Problem

question 61

Multiple Choice

Use the Black-Scholes Option Pricing Model for the following problem.Given: S_O= $70; X = $70; T = 70 days; r = 0.06 annually (0.0001648 daily) ; • = 0.020506 (daily) .No dividends will be paid before option expires.The value of the call option is _______.

• A)$10.16
• B)$5.16
• C)$0.00
• D)$2.16
• E)none of the above

---

Definitions:

Free Cash Flows

The amount of cash a company generates after accounting for cash outflows to support operations and maintain its capital assets.

Cost of Equity Capital

The return a company must earn on its equity investments to compensate its shareholders for the risk they take by investing.

Book Value

The value of an asset as it appears on a company's balance sheet, calculated as the cost of the asset minus any depreciation, amortization, or impairment costs already applied.

Equity Capital

Equity capital is the amount of money that is invested into a company by its owners in exchange for shares of ownership.