Estimate the corresponding value of put option

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Reference no: EM131625202

Question 4 Nobitha Manja Berhad (NMB) stock is currently selling at RM20. The exercise price is RM18. The stock option has 120 days to expiration. The annual risk-free interest rate is 7%. The variance has been estimated to be 25% per annum. (Assume: 365 days in a year) From the above information you are required to answer the following questions:

a. Calculate the value of the call option based on Black-Scholes model.

b. Estimate the corresponding value of put option.

c. Briefly explain the effect on the value of the call and put option if:

i. the current stock price decreases;

ii. the standard deviation of return on the stock increases

iii. the risk-free rate decreases

iv. the time to expiration increases;

Reference no: EM131625202

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