• The price of the stock is $40.
• The strike price is $40.
• The option matures in 3 months (t = 0.25).
• The standard deviation of the stock's returns is 0.40 and the variance is 0.16.
• The risk-free rate is 6 percent.
Given this information, the analyst is then able to calculate some other necessary components of the Black-Scholes model:
• d1 = 0.175
• d2 = -0.025
• N(d1) = 0.56946
• N(d2) = 0.49003
N(d1) and N(d2) represent areas under a standard normal distribution function. Using the Black-Scholes model, what is the value of the call option?
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