Calculate the price of a call option using the Black Scholes model and the following data.Stock price = $47.30.Exercise price = $50.Time to expiration = 85 days.Risk free rate = 3.0%.Standard deviation = 35%.
A) $1.11
B) $2.22
C) $3.33
D) $4.44

Question

Quizplus · Accepted Answer

Using the Black Scholes model with the provided data, we get:

d1 = [ln(S/E) + (r + σ^2/2)t] / (σ√t) 
= [ln(47.30/50) + (0.03 + 0.35^2/2)(85/365)] / (0.35√(85/365)) 
= -0.4675

d2 = d1 - σ√t 
= -0.4675 - 0.35√(85/365) 
= -0.8504

N(d1) = 0.3212 
N(d2) = 0.1988

C = SN(d1) - EN(d2) e^(-rt) 
= 47.30×0.3212 - 50×0.1988×e^(-0.03×85/365) 
= $2.22

Therefore, the answer is B, $2.22.

Calculate the Price of a Call Option Using the Black