1. The current market value of the assets of Bigelow, Inc. is $91 million, with a standard deviation of 19 percent per year. The firm has zero-coupon bonds outstanding with a total face value of $45 million. These bonds mature in 2 years. The risk-free rate is 4 percent per year compounded continuously. What is the value of d1?
2. Assume you are being granted at-the-money stock options today when the stock is trading at $32 a share. These options mature in one year, the continuously compounded risk-free rate is 4.2 percent, and the volatility of the stock’s returns is 22 percent. What is the value of d2 as it is used in the Black-Scholes model?
3. Sam has been granted options on 50,000 shares. The stock is currently trading at $17 a share and the options are at the money. The volatility of the stock returns averages 16 percent. The options mature in 2 years and the risk-free rate is 3.45 percent. N(d1) is .662055 and N(d2) is .576052. Given this information, what is the value of a call option on one share of this stock?