a) Use the Black-Scholes model to value a call option on the following stock: Time...
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a) Use the Black-Scholes model to value a call option on the following stock:
Time to expiration 6 months
Standard deviation 50% per year
Strike price $50
Stock price $50
Interest rate 3%
Dividend yield 0%. Solve this question with the provided Excel work sheet and attach Excel file with your submission for part a) work.
b) Recalculate the value of the option in part a), successfully substituting one of the changes below while keeping the other parameters as in part a)
i. Time to expiration = 4 months
ii. Standard deviation = 15% per year
iii. Strike price = $60
iv. Stock price =$45
v. Interest rate = 8%
vi. Dividend yield = 3% You can write down your results in the space below or record them in an Excel table. Showing your work in Excel for part b) is optional.
c) Based on your calculation in part b), fill in the table below. Use + for positive correlation, - for negative correlation, and undetermined for undetermined correlation.
Input variable
Call option value
Stock price
Strike price
Volatility (standard deviation)
Time to expiration
Interest rate
Dividend yield
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