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XYZ Corp. will pay a $2 per share dividend in two months. Itsstock price currently is $90 per share. A call option on XYZ has anexercise price of $85 and 3-month time to expiration. The risk-freeinterest rate is 0.6% per month, and the stock’s volatility(standard deviation) = 24% per month. Find the Black-Scholes valueof the option. (Hint: Try defining one “period” as a month, ratherthan as a year, and think about the net-of-dividend value of eachshare.)
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