Question

A stock has a market price of $25 and a standard deviation of returns of 24 percent. The $25 call option matures in 4 months and the risk-free rate is 2.89 percent. N(d1) is .555198 and N(d2) is .500096. What is the value of the call option per share of stock

Answer 1

$334.38

Step-by-step explanation:

Use the following formula to calculate the value of call option

Value of call option = ( N (
`d_(1)` ) S ) - N (
`d_(2)` ) K
`e^(rt)`

Where

S = $25

N(d1) = 0.555198

N(d2) = 0.500096

K = 25

r = 2.89%

t = 4/12 = 0.3333

Placing values in the formula

Value of call option = ((0.555198 x $25 ) x $25) - ( 0.500096 x $25 ) x 1.00967891

Value of call option = $346.99875 - $12.62340

Value of call option = $334.37535

Value of call option = $334.38