USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 108

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
A stock currently trades for $130 per share. Options on the stock are available with a strike price of $125. The options expire in 10 days. The risk-free rate is 3 three over this time period, and the expected volatility is 0.35.
-Refer to Exhibit 16.3. Use the Black-Scholes option pricing model to calculate the price of a call option.

• A) $5.19
• B) $4.35
• C) $3.93
• D) $6.19
• E) $8.17

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Definitions:

Pollution Permits

Allowances or credentials issued by governing bodies that enable the holder to emit a specific amount of pollutants over a set time period.

Supply And Demand

The fundamental economic model describing the interaction between the availability of goods (supply) and the desires of those with purchasing power (demand).

Sulfur Dioxide

A colorless gas with a sharp odor, produced by burning sulfur or fossil fuels, and known for its role in causing acid rain.

Tradable Pollution Permits

A strategy utilizing the market to limit pollution, offering economic rewards for lowering the levels of emitted pollutants.