Assume you are a senior financial analyst at Morgan Stanley. You are asked by a client to determine the maximum price he or she should be willing to pay to purchase Honeywell call options having an exercise price of $45 and expiring in 156 days.
The current price of Honeywell stock is 448, the riskless interest rate is 7%, and the estimated rate of return variance of the stock is a 2 = .0961. No dividends are expected to be declared over the next six months.