What is the fair price for the call option

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Reference no: EM131569493

You are going to celebrate your 21st birthday six months from now. Your strict, yet kind, FIN 3000 professor informs you that he will be gifting you $50 on your birthday. You plan to use this gift to gain some experience in trading stocks. You are really interested in the steel company Nucor. The current market price for Nucor's stock is $40. You decide that six months from now, you will buy this stock. However, you realize that six months from now, if the price of the stock is more than 50$, you won't be able to afford the stock. After studying Options, you decide to buy a call option today for Nucor Steel's stock at a strike price of $50. The riskiness of the stock (as measured using standard deviation 'sigma') is 25% and the risk free rate is 5%. What is the fair price for the call option, according to Messrs Black and Scholes? You are given the following information: N(-1.0325)= 0.1509, N(1.4921)= 0.9322, N(-1.2093)= 0.1133, N(1.3153)=0.9058, N(-0.5676)=0.2852 and N(-0.8176)=0.2068. Pick the ones you need to solve this.

A) ?$0.51 ?B) ?$0.43 ?C) ?$0.47 ?D) ?$0.36

Reference no: EM131569493

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