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Homework answers / question archive / Wilt's has a stock price of $38 a share
Wilt's has a stock price of $38 a share. The 9-month options have a strike price of $45. The risk-free rate is 3.2 percent, the standard deviation is 21 percent, N(d1) is 0.23985 and N(d2) is 0.18710. What is the call price?
Present Value factor using Continuous Compounding
rf = 3.2% Months = 9
3.2% x 9/12 = 2.4%
1 + 0.024 + 0.0242 / 2 = 1.024 + .0003 = 1.0243
PV Factor = 1 / 1.0243 = 0.97629
Value of call or Call Price
= N(d1) x Stock price - N(d2) x Present Value of Exercise price
= 0.23985 x 38 - 0.18710 x 45 x 0.97629
= 0.8944
