You Calculate the Black-Scholes Value of a Call Option as $3.50

question 55

Multiple Choice

You calculate the Black-Scholes value of a call option as $3.50 for a stock that does not pay dividends, but the actual call price is $3.75. The most likely explanation for the discrepancy is that either the option is ________ or the volatility you input into the model is too ________.

• A) overvalued and should be written; low
• B) undervalued and should be written; low
• C) overvalued and should be purchased; high
• D) undervalued and should be purchased; high

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Definitions:

Alcohol

A psychoactive substance commonly found in beverages like beer, wine, and spirits, known for its intoxicating effects.

Brain

An organ located in the skull of vertebrates that is the control center for the nervous system, responsible for processing sensory information, regulating body functions, and facilitating cognition.

Reversed

To change something to its opposite direction, position, order, or condition.

Strength Training

A physical exercise regimen designed to improve muscular strength and endurance through resistance exercises.