The Following Information Is Given About Options on the Stock $\sigma$

question 23

Multiple Choice

The following information is given about options on the stock of a certain company.
S₀ = 23 X = 20
r_c = 0.09 T = 0.5
$\sigma$ ² = 0.15
No dividends are expected.
Use this information to answer questions 1 through 8.
-What value does the Black-Scholes-Merton model predict for the call? (Due to differences in rounding your calculations may be slightly different."none of the above" should be selected only if your answer is different by more than 10 cents. )

• A)5.35
• B)1.10
• C)4.73
• D)6.50
• E)none of the above

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Definitions:

Binomial Probability Distribution

A probability distribution that summarizes the likelihood that a variable will take one of two independent values under a given set of parameters or conditions.

Binomial Problem

A statistical question or experiment that has exactly two possible outcomes, 'success' or 'failure', and where the probability of success is the same each time the experiment is conducted.

Standard Deviation

Standard deviation is a measure of the amount of variation or dispersion in a set of values, indicating how much the values in a dataset deviate from the mean.

Standard Deviation

A measure of the amount of variation or dispersion of a set of values, indicating how much the values in a data set vary from the mean.