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Gary Levin is the chief executive officer of MountainbrookTrading Company. The board of directors has just granted Mr. Levin12,000 at-the-money European call options on the company’s stock,which is currently trading at $120 per share. The stock pays nodividends. The options will expire in five years and the standarddeviation of the returns on the stock is 56 percent. Treasury billsthat mature in five years currently yield a continuously compoundedinterest rate of 4 percent.a. Use the Black-Scholes model to calculate the value of thestock options.
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