Gary Levin is the chief executive officer of Mountainbrook Trading Company. The board of directors has...

70.2K

Verified Solution

Question

Finance

Gary Levin is the chief executive officer of MountainbrookTrading Company. The board of directors has just granted Mr. Levin28,000 at-the-money European call options on the company’s stock,which is currently trading at $80 per share. The stock pays nodividends. The options will expire in five years and the standarddeviation of the returns on the stock is 56 percent. Treasury billsthat mature in five years currently yield a continuously compoundedinterest rate of 7.2 percent.

a. Use the Black-Scholes model to calculate the value of the stockoptions. (Do not round intermediate calculations and roundyour answer to 2 decimal places, e.g., 32.16.)

Answer & Explanation Solved by verified expert

3.7 Ratings (363 Votes)

value of the See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Gary Levin is the chief executive officer of MountainbrookTrading Company. The board of directors has just granted Mr. Levin28,000 at-the-money European call options on the company’s stock,which is currently trading at $80 per share. The stock pays nodividends. The options will expire in five years and the standarddeviation of the returns on the stock is 56 percent. Treasury billsthat mature in five years currently yield a continuously compoundedinterest rate of 7.2 percent. a.Use the Black-Scholes model to calculate the value of the stockoptions. (Do not round intermediate calculations and roundyour answer to 2 decimal places, e.g., 32.16.)