Question

This question refers to the Black-Scholes-Merton model of European call option pricing for a non-dividend-paying stock. Please note that one or more of the answer choices may lack some mathematical formatting because of limitations of Canvas Quizzes. Please try to overlook such issues when judging the choices.

Which quantity can be interpreted as the present value of the strike price times the probability that the call option is in the money at expiration?

Group of answer choices

Gamma

K∙e^(rT)∙N(d2)

Delta

S∙N(d1)

Answer #1

**Answer: Option(2) K.e^(rT).N(d2)**

Here, Perfect answer should be K.e^(-rT).N(d2), this can be interpreted as the present value of the strike price times the probability that the call option is in the money at expiration

where,

K = Strike Price of the Option,

N(d2) = standard normal cumulative distribution function,

e = the exponential function to bring the Strike Price to Present value (Continous Compounding)

r = Rate of Interest

T = Time Remaining until expiration

Other Options:

**Delta** is the degree to which an option price
will move given a small change in the underlying stock price

**Gamma** measures how fast the delta changes for
small changes in the underlying stock price. i.e. the delta of the
delta

S is the Current Stock Price, we want Strike price to be brought to present value but not current stock price.

Use Black-Scholes model to price a European call option
Use the Black-Scholes formula to find the value of a call option
based on the following inputs. [Hint: to find N(d1) and N(d2), use
Excel normsdist function.] (Round your final answer to 2
decimal places. Do not round intermediate
calculations.)
Stock price
$
57
Exercise price
$
61
Interest rate
0.08
Dividend yield
0.04
Time to expiration
0.50
Standard deviation of stock’s
returns
0.28
Call value
$

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European TSLA call option expiring on December 18, 2020 has a delta
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no dividend. Compute the Black-Merton-Scholes delta (in decimals
with correct signs) of the TSLA European put option at the same
strike and expiry."

TSLA stock price is currently at $800. The $1000-strike European
TSLA call option expiring on December 18, 2020 has a delta of 0.45.
N(d2) of the option is 0.25. Assume zero interest rate and no
dividend. Compute the Black-Merton-Scholes delta (in decimals with
correct signs) of the TSLA European put option at the same strike
and expiry."

"TSLA stock price is currently at $800. The $1000-strike
European TSLA call option expiring on December 18, 2020 has a delta
of 0.45. N(d2) of the option is 0.25. Assume zero interest rate and
no dividend. Compute the Black-Merton-Scholes value of the TSLA
European put option at the same strike and expiry."

"TSLA stock price is currently at $800. The $1000-strike
European TSLA call option expiring on December 18, 2020 has a delta
of 0.45. N(d2) of the option is 0.25. Assume zero interest rate and
no dividend. Compute the Black-Merton-Scholes value of the TSLA
European put option at the same strike and expiry."

"TSLA stock price is currently at $800. The $1000-strike
European TSLA call option expiring on December 18, 2020 has a delta
of 0.45. N(d2) of the option is 0.25. Assume zero interest rate and
no dividend. Compute the Black-Merton-Scholes value of the TSLA
European put option at the same strike and expiry."

"TSLA stock price is currently at $800. The $1000-strike
European TSLA call option expiring on December 18, 2020 has a delta
of 0.45. N(d2) of the option is 0.25. Assume zero interest rate and
no dividend. Compute the Black-Merton-Scholes value of the TSLA
European put option at the same strike and expiry

TSLA stock price is currently at $800. The $1000-strike European
TSLA call option expiring on December 18, 2020 has a delta of 0.45.
N(d2) of the option is 0.25. Assume zero interest rate and no
dividend. Compute the Black-Merton-Scholes value of the call
option.

"TSLA stock price is currently at $800. The $1000-strike
European TSLA call option expiring on December 18, 2020 has a delta
of 0.45. N(d2) of the option is 0.25. Assume zero interest rate and
no dividend. Compute the Black-Merton-Scholes value of the call
option."

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