Assume That the Current Price of DEY Stock Is $27

question 121

Multiple Choice

Assume that the current price of DEY stock is $27.50,that a 6 month call option on the stock has a strike or exercise price of $25.50,the risk free rate is 4%,and that you have calculated N(d₁) as .5476 and N(d2) as .4432.Use the Black-Scholes model to calculate the price of the option.

• A)$1.74
• B)$4.20
• C)$1.98
• D)($2.50)

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Definitions:

Consumer Surplus

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

Two-part Tariff

A pricing strategy that consists of a fixed fee plus a variable usage fee, common in services like utilities.

Entry Fee

An initial charge required to gain access to a service, event, or establishment.

Tying

Practice of requiring a customer to purchase one good in order to purchase another.