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10. Assume a stock pays no dividends and is presently selling for $80. The continuously compounded return on the stock In (Si/So), is distributed Nut, ovt), with u = 25% per annum and o2 = 16% per annum. The risk free rate is 14% per annum. (a) Use the Black Scholes model to value a call option on the stock with an exercise price of $75 and a maturity date 3 months hence. S = $80, E = $75, T =1/4 yr, o2 = .16 (b) If you wished to replicate the payoff from the call by continually adjusting a position in the stock and a position in bonds, what position should you take today? (c) If the stock were to decrease in value overnight by $1.00, by how much would the call change in value? 10. Assume a stock pays no dividends and is presently selling for $80. The continuously compounded return on the stock In (Si/So), is distributed Nut, ovt), with u = 25% per annum and o2 = 16% per annum. The risk free rate is 14% per annum. (a) Use the Black Scholes model to value a call option on the stock with an exercise price of $75 and a maturity date 3 months hence. S = $80, E = $75, T =1/4 yr, o2 = .16 (b) If you wished to replicate the payoff from the call by continually adjusting a position in the stock and a position in bonds, what position should you take today? (c) If the stock were to decrease in value overnight by $1.00, by how much would the call change in value

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