Call option using black-scholes option pricing model

Assignment Help Financial Management

Reference no: EM131915725

Consider the following option on SSS stock: The stock price is $35, the exercise price is $40, and the annual yield on treasury bill is 10%. The historical standard deviation of the stock is .45 per year, and it is assumed to be constant. The duration of the call is 4 months. The quoted option price in the WSJ is $7.45.

a) calculate the value of the call option using Black-Scholes Option Pricing Model. Is the option undervalued or overvalued? Why?

Reference no: EM131915725

Questions Cloud

What would her cash flow be under new capital structure : What would her cash flow be under the new capital structure assuming that she keeps all of her shares?

What are the economics of the alternatives : What are the economics of the alternatives? Think of impacts on revenues, costs, and profitability. What evidence do I need to present to justify those claims?

Calculate return on equity and roe : Calculate return on equity, ROE, under each of the three economic scenarios before any debt is issued, assuming no taxes.

Analyze the potential demand for the product : Demand analysis: Analyze the potential demand for this product (or service) based on the current and expected market.

Call option using black-scholes option pricing model : calculate the value of the call option using Black-Scholes Option Pricing Model. Is the option undervalued or overvalued? Why?

The rate of return on short sale : The rate of return on the short sale is 10%. The stock is purchased in one year for X Determine the price X at which the stock is purchased.

What criteria should be used to measure team performance : What specific criteria should be used to measure team performance? In conducting the team performance appraisal, what sources would you use and why?

Determine the rate of return on short sale : One year from now, the stock is purchased for a price of $80. Determine the rate of return on the short sale.

Describe potential global strategies for the organization : Describe potential global strategies for the organization. Assess potential corporate level strategies for the organization.

User Account

All Pages