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18problem 3/22/2010 7:09 1/4/2006 Chapter 18. Solution to End-of-Chapter Comprehensive/Spreadsheet Problem Problem 18-12 Assume you have been given the following information: S $70 K $60 T 0.44 5% σ 0.25 Using the Black-Scholes Option Pricing Model, what would be the value of the option? = 1.14206 = 0.97550 Using the formula for option value and the normal distribution function, we can find the call and put option value C = $12.11 P = $0.79 a. Construct data tables for the call and put prices as the risk free interest rate increases from 1%, to 2%, 3%, 4 Chart the call and put prices. Does the prices increase or decrease with increasing risk free interest rate? Risk free Rate d1 d2 N(d1) N(d2) C N(-d1) N(-d2) P 1.00% 1.0355 0.8689 0.8498 0.8076 11.2456 0.1502 0.1924 0.9799 2.00% 1.0621 0.8956 0.8559 0.8148 11.4602 0.1441 0.1852 0.9299 3.00% 1.0888 0.9222 0.8619 0.8218 11.6757 0.1381 0.1782 0.8821 4.00% 1.1154 0.9489 0.8677 0.8287 11.8921 0.1323 0.1713 0.8363 5.00% 1.1421 0.9755 0.8733
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This note was uploaded on 03/21/2010 for the course BUSINESS AB102 taught by Professor Woo during the Spring '10 term at Nanzan.

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