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Old Exam Problems - Options Page 3 of 5 Pages 7. Assume that a share of stock has a current price of $60. Also assume that a call option on this stock has 1 year to maturity, a standard deviation of 0.20, an exercise price of $50, and that the appropriate 1-year interest rate is 4.00%. What is the price of this call option using the Black-Scholes option-pricing model? (A cumulative normal probability table is at the end of this exam -- you should round off your answers for d 1 and d 2 to two decimal places.) A. $12.04 B. $13.75 C. $14.19 D. $12.67 E. $13.23 8. Assume that you calculate the standard deviation of a security’s returns to be 5.04% using monthly data. Determine the annualized standard deviation of these returns using the method discussed in class with respect to the case Ito’s Dilemma. 9. Assume that you have a call option with a strike (exercise) price of $45, a current stock
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Unformatted text preview: price of $52, 146 days until expiration, and an annualized standard deviation of 28.24%. Assuming a risk-free rate of 4.00 percent, and using the cumulative probability tables provided at the end of this exam, determine the price of this call option using the Black-Scholes Option Pricing Formula. (Take all preliminary numbers out to 9 decimal places.) A. $10.85 B. $ 3.07 C. $12.36 D. $ 8.59 E. $ 5.92 10. Assume that you have a call option with a strike (exercise) price of $30, a current stock price of $32, 73 days until expiration, and an annualized standard deviation of 32.42%. Assuming a risk-free rate of 4.00 percent, you can calculate that the price of this call options is equal to $3.07. Given this information, calculate the price of an equivalent put option (same parameters). (Take all preliminary numbers out to 9 decimal places.) A. $0.92 B. $1.04 C. $0.83 D. $0.88 E. $0.97...
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