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An analyst wants to use the Black-Scholes model to value call options on the stock of Ledbetter Inc. based on the following data:
The price of the stock is $40.The strike price of the option is $40.The option matures in 3 months (t = 0.25).The standard deviation of the stock's returns is 0.40, and the variance is 0.16.The risk-free rate is 6%.
Given this information, the analyst then calculated the following necessary components of the Black-Scholes model:d1 = 0.175d2 = -0.025N(d1) = 0.56946N(d2) = 0.49003
N(d1) and N(d2) represent areas under a standard normal distribution function. Using the Black-Scholes model, what is the value of the call option?
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