Question

As a financial analyst at JPMorgan Chase investments, you are evaluating European call options and put options using Black Scholes model. Suppose BMI’s stock price is currently $75. The stock’s standard deviation is 7.0% per month. The option with exercise price of $75 matures in three months. The risk-free interest rate is 0.8% per month. Please answer the following questions.

which one is the correct answers

	1.	The price of the European call option is $13.14
	2.	The price of the six month European call option is $3.76
	3.	The risk free interest rate per year is 11.8%
	4.	The call option will increase by 20 cents if the stock goes up by $1.
	5.	The standard deviation per year is 24.25%
	6.	The risk free interest rate per year is 1%
	7.	The standard deviation per year is 16%
	8.	The standard deviation per year is 84%.
	9.	The risk free interest rate per year 9.6%
	10.	The call option will decrease 60 cents if the stock goes up by $1.
	11.	The standard deviation per year is 70%.
	12.	The call options delta is 0.6015
	13.	The price of the European call option is $4.5062
	14.	The price of the call option is $3.50
	15.	The risk free interest rate per year is 8%

Answer 1

The value of option can be determined by current price less strike price, if the balance of current price is low than the strike price then the value of option will be zero.

value of option

Value of option	spot price - strike price/
	$75-$75/
	$75-$59.54
Value of option	$15.46

Value of standard deviation for 12 month.

Value of annual standard deviation	7%12
	84%

Hence, option (8) is current our standard deviation for 12 month is 84%