A stock currently trading at $121 pays a $8 dividend in four months and $5 dividend seven months. A call option on the stock with an intrinsic value of $9 expires in ten months. Annualized yield for T-bill for this option is 6% and annualized variance of the continuously compounded return on the stock is 0.0225. (a) Compute S0′ (b) Compute d1 and N(d1) (c) Compute N(d2) assuming d2 is -.1153. Use this N(d2) in part (d). (d) Compute the price of the European call.
A stock currently trading at $121 pays a $8 dividend in four months and $5 dividend seven months. A call option on the stock with an intrinsic value of $9 expires in ten months. Annualized yield for T-bill for this option is 6% and annualized variance of the continuously compounded return on the stock is 0.0225. (a) Compute S0′ (b) Compute d1 and N(d1) (c) Compute N(d2) assuming d2 is -.1153. Use this N(d2) in part (d). (d) Compute the price of the European call.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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14. A stock currently trading at $121 pays a $8 dividend in four months and $5 dividend seven months. A call option on the stock with an intrinsic value of $9 expires in ten months. Annualized yield for T-bill for this option is 6% and annualized variance of the continuously compounded return on the stock is 0.0225.
(a) Compute S0′
(b) Compute d1 and N(d1)
(c) Compute N(d2) assuming d2 is -.1153. Use this N(d2) in part (d).
(d) Compute the price of the European call.
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