A Stock Is Priced at $33

question 27

Essay

A stock is priced at $33.25. The stock has call options with an exercise price of $35 that expire in 60 days. The underlying stock price volatility is 39 percent per year and the annual risk-free rate is 4.5 percent. According to the Black-Scholes option pricing model,what is the most you should be willing to pay for this call option?

Using the Normsdist function in Excel to find N(dx)
C0 = ($33.25 × 0.42131)- [$35e−0.045(60/365)× 0.3607]= $1.4781 or $147.81 per contract

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Definitions:

Reducing Sugar

Any sugar that is capable of acting as a reducing agent because it has a free aldehyde group or a free ketone group.

α-D-Fructofuranose

An isomer of fructose where the furanose ring form predominates, characterized by its specific configuration at the anomeric carbon.

Methyl Glycoside

Glycosides formed by the reaction of a sugar with methanol, characterized by a methoxy group replacing the glycosidic hydroxyl group of the sugar.

Mutarotation

The change in optical rotation due to the change in equilibrium between two anomers of a sugar solution over time.