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Unformatted text preview: • The riskfree rate is 6 percent Using the BlackScholes model, determine the value of the call option. A. $0.60 B. $3.17 C. $4.20 D. $8.00 * E. $3.47 Given this information, the analyst is then able to calculate some other necessary components of the BlackScholes model: • d 1 = 0.175 • d 2 = 0.025 • N(d 1 ) = 0.5695 • N(d 2 ) = 0.4900 N(d 1 ) and N(d 2 ) represent areas under a standard normal distribution function. The BlackScholes model calculates the value of the call option as: V = P [N(d 1 )]  (X)e (RF)(t) [N(d 2 )] V = ($40)(0.5695)]  ($40)(e(0.06)(0.25) )(0.4900) = $3.47...
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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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