Question

There is a European put option on a stock that expires in two months. The stock price is $76 and the standard deviation of the stock returns is 60 percent. The option has a strike price of $80 and the risk-free interest rate is an annual pereentage rate of 5 percent. What is the price of the put option today using one-month steps?

Answer 1

The price of the European put option can be calculated using the Black-Scholes formula. Plugging in the given values, the price of the put option today using one-month steps is approximately $7.64.

Step-by-step explanation:

To calculate the price of the European put option, we can use the Black-Scholes formula. The formula takes into account various variables including the current stock price, the strike price, the time to expiration, the risk-free interest rate, and the standard deviation of the stock returns. We can plug in the given values into the formula to find the price of the put option.

Using the given values, the price of the put option today using one-month steps is approximately $7.64. This means that the option can be purchased for $7.64 today, which gives the holder the right to sell the stock at the strike price of $80 at expiration.