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Answers and Solutions:
13  11
Then calculate the coefficient of variation:
CV = 17,004/22,562 = 0.7537.
σ
2
= ln(CV
2
+1)/t = ln(0.7537
2
+1)/2 = 0.2249
so
σ
2
= 0.2249
Notice that in this case the direct method and the indirect method give very similar results
for
σ
.
P = $18,646
X = $20,000
t = 2.
r
RF
= 0.06.
σ
2
= 0.2025
d
1
= ln[18.646/20] + [0.06 + .5(0.2025)](2)
= 0.3966
(0.2025)
0.5
(2)
0.5
d
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Unformatted text preview: 2 = 0.3966  (0.2025) 0.5 (2) 0.5 = 0.2398 From Excel function NORMSDIST, or approximated from the table in Appendix A: N(d 1 ) = 0.6542 N(d 2 ) = 0.4053 Using the BlackScholes Option Pricing Model, you calculate the option’s value as: V = P[N(d 1 )]  t r RF Xe − [N(d 2 )] = $18.646(0.6542)  $20e (0.06)(2) (0.4053) = $12.198  $7.189 = $5.009 thousand....
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.
 Spring '08
 Staff

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