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Consider an option on a non-dividend paying stock when the stock price is $67, the exercise...

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Finance

Consider an option on a non-dividend paying stock when the stockprice is $67, the exercise price is $61, the risk-free rate is0.5%, the market volatility is 30% and the time to maturity is 6months. Using the Black-Scholes Model when necessary (i) Computethe price of the option if it is a European Call. (ii) Compute theprice of the option if it is an American Call. (iii) Compute theprice of the option if it is a European Put. (iv) Assuming twodividend payments $1.75 and $2.75, two months and five months fromnow, compute the price of the option if it is a European Call. (v)Refer to the dividend information provided in (iv) above. Computethe price of the option if it is an American Call. Provide agraphical illustration to demonstrate how the price of thisAmerican Call and the payoff from the same change with respect tochanges in the stock price. (vi) PUT ALL IN EXCEL ATTACHMENTSHOWING FORMULAS

Answer & Explanation Solved by verified expert
4.2 Ratings (613 Votes)
As per concept of Black Scholes model the valuation ofEuropean style of    See Answer
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