Question

A stock trades for $100.53 and the riskless rate is 5%. You are considering a European call option expiring in 11 months with an exercise price of 100.   You calculate N(d₁) to be 0.731 and N(d₂) to 0.535. What is the Black-Scholes-Merton value the option? (Enter your answer to two decimal places, such as "xx.xx").

Answer 1

Using Black Scholes Model. Value of Call Option will be given by : -

Call Premium = Current Stock Price * N(d1) - N(d2) * Strike Price * e^(r*t)

= 100.53 * 0.731 - 0.535 * 100 * e^(0.05*11/12)

= 100.53 * 0.731 - 0.535 * 100 * e^(0.04583333333)

= 100.53 * 0.731 - 0.535 * 100 * 1.04689991309

= 73.48743 - 56.0091

= $ 17.48

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