Use the Black-Scholes Model to Calculate the Theoretical Value of a DBA

question 64

Essay

Use the Black-Scholes model to calculate the theoretical value of a DBA December 45 call option.Assume that the risk free rate of return is 6 percent,the stock has a variance of 36 percent,there are 91 days until expiration of the contract,and DBA stock is currently selling at $50 in the market.

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Definitions:

Variable Cost

Costs that vary in proportion to the volume of goods or services produced, such as materials and labor.

Fixed Costs

Definition: Business expenses that remain the same regardless of the level of production or sales.

Break-Even Point

The moment when the sum of all expenses matches the sum of all income, resulting in neither a profit nor a loss.

Revenue

The total income generated from the sale of goods or services related to a company's primary operations.