A Stock Is Priced at $33

question 12

Essay

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

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Definitions:

Hartford Convention

Meeting of New England Federalists on December 15, 1814, to protest theWar of 1812; proposed seven constitutional amendments (limiting embargoes and changingrequirements for officeholding, declaration of war, and admission of new states), but the war endedbefore Congress could respond.

Democratic-Republican Society

The Democratic-Republican Society, active in the late 18th and early 19th centuries, was a political group in the United States that emphasized states' rights and advocated for a strict interpretation of the Constitution.

Freedom of Assembly

The right of individuals to come together and collectively express, promote, pursue, and defend their ideas; a fundamental aspect of democratic societies.

Freedom of Expression

The freedom to openly express thoughts and beliefs through verbal, written, and various other communication methods without the worry of being censored or penalized.