# fm9 2 - RF = 0.06 σ 2 = 0.12 d 1 = 0.24495 d 2 = 0.0000...

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Answers and Solutions: 9 - 2 SOLUTIONS TO END-OF-CHAPTER PROBLEMS 9-1 Exercise value = Current stock price – strike price = \$30 - \$25 = \$5. Time value = Option price – Exercise value = \$7 - \$5 = \$2. 9-2 Option’s strike price = \$15; Exercise value = \$22; Time value = \$5; V = ? P 0 = ? Time Value = Market price of option - Exercise value \$5 = V - \$22 V = \$27. Exercise value = P 0 - Strike price \$22 = P 0 - \$15 P 0 = \$37. 9-3 P = \$15; X = \$15; t = 0.5; r
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Unformatted text preview: RF = 0.06; σ 2 = 0.12; d 1 = 0.24495; d 2 = 0.0000; N(d 1 ) = 0.59675; N(d 2 ) = 0.500000; V = ? Using the Black-Scholes Option Pricing Model, you calculate the option’s value as: V = P[N(d 1 )] - t r RF Xe − [N(d 2 )] = \$15(0.59675) - \$15e (-0.06)(0.5) (0.50000) = \$8.95128 - \$15(0.9512)(0.50000) = \$1.6729 ≈ \$1.67. 9-4 Put = V – P + X exp(-r RF t) = \$6.56 - \$33 + \$32 e-0.06(1) = \$6.56 - \$33 + \$30.136 = \$3.696 ≈ \$3.70....
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