The Current Stock Price of Johnson and Johnson Is $64

question 62

Multiple Choice

The current stock price of Johnson and Johnson is $64 and the stock does not pay dividends. The instantaneous risk free rate of return is 5%. The instantaneous standard deviation of J&J's stock is 20%. You wish to purchase a call option on this stock with an exercise price of $55 and an expiration date 73 days from now.
-Using the Black-Scholes OPM,the call option should be worth __________ today.

• A) $0.01
• B) $0.08
• C) $9.26
• D) $9.62

---

Definitions:

Ordinary annuity

A series of equal payments made at the end of consecutive periods over a specified length of time.

Deferred annuity

An insurance product that provides future payments to the holder, typically starting at retirement, in exchange for current premiums or a lump sum payment.

Ordinary annuity

A regular annuity involves uniform payments disbursed at the end of each period within a set timeframe.

Compounded annually

This term describes the process of calculating interest on both the initial principal and the accumulated interest from previous periods, done once every year.