Estimate the value of the option in problem

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1. A non-dividend paying stock sells for $23 3/8.  What is the theoretical value of a European style, $25 call with 50 days until expiration, assuming interest rates of 6% and annual volatility of 25%?

2. Estimate the value of the option in Problem 1 if it were American style instead of European.

3. You are going to use the Black-Scholes option pricing model on a six-month call option that has the following expected dividend stream; short term interest rates are 5%.

 

Time until dividend

2 months

5 months

8 months

Expected dividend

$1.00

$1.00

$1.05

 

 

If the current stock price is $105, what is the adjusted stock price you would use as a BSOPM input?

Reference no: EM13515863

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