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27 April, 12:22

When the non-dividend paying stock price is $20, the strike price is $20, the risk-free rate is 6%, the volatility is 20% and the time to maturity is 3 months, which of the following is the price of a European call option on the stock?

(Note: N (*) represent cumulative normal density function.)

a. 20*N (0.1) - 19.7*N (0.2)

b. 19.7*N (0.2) - 20N * (0.1)

c. 19.7*N (0.1) - 20N * (0.2)

d. 20N * (0.2) - 19.7N * (0.1)

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Answers (1)
  1. 27 April, 12:57
    0
    The correct option is d. 20N (0.2) - 19.7N * (0.1)

    Explanation:

    Given the following inputs:

    Stock Price 20

    Strike Price 20

    Time to maturity: 0.25

    Risk-free Rate 0.06

    Dividend Yield 0

    Annualized volatility 0.2

    Cost of Carry 0.06

    We get the following outputs:

    d1=0.2

    d2=0.1

    N (d1) = 0.57925971

    N (d2) = 0.53982784

    Call=0.94937723
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