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:

First-Degree Price Discrimination

A pricing strategy where a seller charges each customer the maximum price they are willing to pay.

Producer Surplus

The difference between the amount a producer is paid for a good versus what they would have been willing to accept, reflecting the benefit to producers from participating in the market.

Consumer Surplus

The difference between the total amount consumers are willing to pay for a good or service and the total amount they actually pay.

Marginal Revenue Function

A mathematical formula that shows the additional revenue generated by selling one more unit of a good or service.