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# A call option on Bedrock Boulders stock has a market price of \$7.

## The stock sells

for \$30 a share, and the option has an exercise price of \$25 a share.
a. What is the exercise value of the call option?
b. What is the premium on the option?

Call Option 7
SP 30
OP V 25

X 5
P 2
The exercise price on one of Flanagan Companys call options is \$15, its exercise
value is \$22, and its premium is \$5. What are the options market value and the stocks
current price?

Call Op 15
EX Value 22

## Option's Market Value 27

18-4 BLACK-SCHOLES MODEL Assume that you have been given the following information on
Purcell Industries:
Current stock price = \$15 Exercise price of option = \$15
Time to maturity of option = 6 months Risk-free rate = 10%
Variance of stock price = 0.12 d1 = 0.32660
d2 0.08165 N(d1) = 0.62795
N(d2) = 0.53252
Using the Black-Scholes Option Pricing Model, what is the value of the option?

V=P[n(d1)]-Xe^Rrft*[N(d2)]

P 15 P[N(d1) 4.899
N 6m Xe^(Rrf*t) 0.850031
Rrf 0.1 Xe^(Rrf*t)*[N(d2] 0.452658
Xe 15
N(d1) 0.3266
N(d2) 0.53252

V 4.446342