Question

Suppose a zero dividend payment stock is selling for K48 per share. The standard deviation of the return on this stock is 25%. The risk free rate s 8%. The option has a strike price K50.For a 6 month call option on this stock,find; (a) D1 (b) D2 (c) N(01) (d) N(02) (e) Value of the call option (f) Value of the put option (4 Marks) (4 Marks) (4 Marks) (3 Marks) (6 Marks) (4 Marks) (25 Marks)

Answer 1

Answer below, along with the excel workings and formulae:

Black Scholes Model:
Stock	48
Strike	50
Volatility	25%
Risk Free Rate	8%
Term	0.5000
Dividend Yield	0%
Calculation of:
d1	0.0837
d2	-0.0930
N(d1)	0.5334
N(d2)	0.4629
Call Option	3.3624
Put	3.4019

SHOW FORMULA:

1	B	C
2	Black Scholes Model:
3	Stock	48
4	Strike	50
5	Volatility	0.25
6	Risk Free Rate	0.08
7	Term	=6/12
8	Dividend Yield	0
9
10	Calculation of:
11	d1	=(LN(C3/C4)+(C6-C8+C5^2/2)*C7)/(C5*SQRT(C7))
12	d2	=C11-(C5*SQRT(C7))
13
14	N(d1)	=NORMSDIST(C11)
15	N(d2)	=NORMSDIST(C12)
16
17	Call Option	=C3*NORMSDIST(C11)-C4*EXP(-C6*C7)*NORMSDIST(C12)
18	Put	=C4*EXP(-C6*C7)*NORMSDIST(-C12)-C3*NORMSDIST(-C11)