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

question 1

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

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