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  3. a) use the black-scholes model to value a call opt

a) Use the Black-Scholes model to value a call option on the following stock: Time...

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Accounting

a) Use the Black-Scholes model to value a call option on the following stock:

Time to expiration 6 months

Standard deviation 50% per year

Strike price $50

Stock price $50

Interest rate 3%

Dividend yield 0%. Solve this question with the provided Excel work sheet and attach Excel file with your submission for part a) work.

b) Recalculate the value of the option in part a), successfully substituting one of the changes below while keeping the other parameters as in part a)

i. Time to expiration = 4 months

ii. Standard deviation = 15% per year

iii. Strike price = $60

iv. Stock price =$45

v. Interest rate = 8%

vi. Dividend yield = 3% You can write down your results in the space below or record them in an Excel table. Showing your work in Excel for part b) is optional.

c) Based on your calculation in part b), fill in the table below. Use + for positive correlation, - for negative correlation, and undetermined for undetermined correlation.

Input variable

Call option value

Stock price

Strike price

Volatility (standard deviation)

Time to expiration

Interest rate

Dividend yield

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