Determine the price of a call option on jcom

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Shares of JCOM are trading at $65.90 per share. The standard deviation of the yearly return for JCOM's stock is 40.86 percent (0.4086). JCOM is not expected to pay a dividend during the next year. Call options on JCOM having a strike price of 67.50and 289 days to expiration have a hedge ratio (or delta) of .5504. The risk-adjusted probability that these call options finish in the money is .4064. The continuously compounded risk-free rate of interest is 0.50percent, so the present value of a risk-free $1 to be received at the option expiration in 289 days is $0.99599. Assuming the Black-Scholes option-pricing model correctly determines the prices of European put and call options,

a. Determine the price of a call option on JCOM having a strike price of $67.50 and 289 days to expiration,

b. Determine the price of a European put option on JCOM having a strike price of $67.50and 289 days to expiration,

c. Determine the risk-adjusted probability that a European put option on JCOM having a strike price of $67.50 and 289 days to expiration finishes in the money.

Reference no: EM132494483

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