An investor is very bullish about the stock market but does not
want to take too much
risk. He decides to buy four American call options on one
particular stock. Each option is
for 100 shares with exercise price at $65 per share and maturity of
eight months. He is told
that the expected return from the stock is 20% per annum with
annual volatility of 30%.
The current stock price is $61. The risk{free rate is 6% per annum.
Calculate the price of
one call option, assuming the stock will not pay any dividends
before maturity of the option.
Input Data  
Stock Price now (P)  61  
Exercise Price of Option (EX)  65  
Number of periods to Exercise in years (t)  0.67  
Compounded RiskFree Interest Rate (rf)  6.00%  
Standard Deviation (annualized s)  30.00%  
Output Data  
Present Value of Exercise Price (PV(EX))  62.4513  
s*t^.5  0.2449  
d1  0.0265  
d2  0.2185  
Delta N(d1) Normal Cumulative Density Function  0.5106  
Bank Loan N(d2)*PV(EX)  25.8256  
Value of Call  5.3187  
Value of Put  6.7700  


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