Homework answers / question archive / Acct 352) Question #1) Jack has 200 shares of Allied Business Corporation (ABC) in his portfolio with a current share price of $33

Acct 352) Question #1) Jack has 200 shares of Allied Business Corporation (ABC) in his portfolio with a current share price of $33

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Call options are also available on ABC shares, with an expiry date in 6 months.  Both the call and put options have an exercise price of $30, are written on ABC shares, and have 6 months to maturity.  The risk-free rate is now 5% per annum and the standard deviation of the ABC share price is estimated to be 12%.

Your assistant has prepared some preliminary calculations and has determined that N(d₁)=.9279 and N(d₂)=.9155

Required:

1. Using the Black-Scholes option pricing model, calculate the value of the ABC call options.
2. Explain and calculate the time value of the call option

 

3. Using put-call parity, calculate the value of the put options.

 

4. Identify 5 variables that affect put option value and the direction of their effect (ie put option value positively or negatively correlated to variable).