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Fall 1, 2012

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7/22/2012

Chapter 8. Ch 08 P08 Build a Model

Except for charts and answers that must be written, only Excel formulas that use cell references or functions will be accepted for credit.

Numeric answers in cells will not be accepted.

You have been given the following information on a call option on the stock of Puckett Industries:

P=

$65

t=

σ=

0.5

50.00%

X=

rRF =

$70

4%

a. Using the Black-Scholes Option Pricing Model, what is the value of the call option?

First, we will use formulas from the text to solve for d1 and d2.

Hint: use the NORMSDIST function.

(d1)

=

N(d1) =

(d2)

=

N(d2) =

Using the formula for option value and the values of N(d) from above, we can find the call option value.

VC

=

b. Suppose there is a put option on Puckett's stock with exactly the same inputs as the call option. What is the value of

the put?

Put option using Black-Scholes modified formula

=

Put option using put-call parity

=