What is the probability that the call is exercised

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Reference no: EM131326860

Use excel to answer the following questions. Consider the following environment:

the current spot price of an asset is $50,

the annualized volatility is 11.5%, and

the interest rate is 3% per year

Consider a one-year call with a strike of $55.

a. What is the value of d2 and the value of d1?

b. What is the probability that the call is exercised?

c. What is the discounted expected value of the sale price assuming the call is exercised optimally?

d. What is the discounted expected value of the purchase price assuming the call is exercised optimally?

e. What is the premium of this call based on the previous two questions?

Reference no: EM131326860

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