Wilt's has a stock price of $38 a share

Finance Dec 28, 2020

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?

Expert Solution

Present Value factor using Continuous Compounding

r_f = 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

Archived Solution

Unlocked Solution

You have full access to this solution. To save a copy with all formatting and attachments, use the button below.

Already a member? Sign In

Important Note: This solution is from our archive and has been purchased by others. Submitting it as-is may trigger plagiarism detection. Use it for reference only.

For ready-to-submit work, please order a fresh solution below.

Or get 100% fresh solution

Get Custom Quote