Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Suppose that on 27 October 2022, Wall Street Journal in New
York presents the following price for 27 March 2023 call options on Microsoft
stock (in $ USA)
strike 75 80 85
price 11 7.96 5.5
while the annual interest rate is 4% per year. On this date (27 October
2022) the Microsoft stock was trading at $81.625.
Suppose we decide that the volatility of the market is 30%. Should you
buy the call option as the European one with strike price $80? Justify your
answer.
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Transcribed Image Text:Suppose that on 27 October 2022, Wall Street Journal in New York presents the following price for 27 March 2023 call options on Microsoft stock (in $ USA) strike 75 80 85 price 11 7.96 5.5 while the annual interest rate is 4% per year. On this date (27 October 2022) the Microsoft stock was trading at $81.625. Suppose we decide that the volatility of the market is 30%. Should you buy the call option as the European one with strike price $80? Justify your answer.
Expert Solution
Check Mark
Given,
Stock Price S  $                                     80.00
Strike Price K  $                                     81.625
Volatility σ 30.00%
Risk Free Rate r 4.00%
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