Use the Following Information to Answer the Following Question(s)

question 34

Multiple Choice

Use the following information to answer the following question(s) .
Valuing a call option using the Black-Scholes model:
Current price of ABZ stock = $50
Exercise or strike price of the call option = $48
The maturity of the option is 0.5 years
The annualized variance in the returns on the stock is .20
The risk free rate of interest is 3% per annum
-What is the value of d₂ that should be used when calculating the value of a call option on this stock with the Black-Scholes option pricing model.

• A).33464
• B).07483
• C).40822
• D).01842

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Definitions:

Inelastic

A characteristic of goods whereby a change in price leads to a relatively smaller change in the quantity demanded or supplied.

Total-revenue Test

A method used to determine the price elasticity of demand by observing changes in total revenue as a result of price alterations.

Demand

The volume of a commodity or service that buyers intend and can afford to buy across a range of prices over a set time frame.