Calculate the Price of a European Call Option Using the Black

question 19

Multiple Choice

Calculate the price of a European call option using the Black Scholes model and the following data.Stock price = $56.80.Exercise price = $55.Time to expiration = 15 days.Risk free rate = 2.5%.Standard deviation = 22%.Dividend yield = 8%.

• A) $1.49
• B) $1.79
• C) $2.04
• D) $2.19

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Definitions:

Capital Budget

The process and plan for determining and allocating resources for capital or investment projects within an organization.

Common Stock

Equity ownership in a company, granting holders voting rights and a share in the company’s profits through dividends.

WACC

A calculation known as the Weighted Average Cost of Capital determines a corporation's capital costs by proportionally weighting different categories of capital.

Flotation Costs

Expenses incurred by a company in issuing new securities, including underwriting, legal, and registration fees.