Assume we have the following information for the call option written on BBB stock. Current price of BBB stock is $160. Continuously compounded risk-free rate is 4%. Exercise price of the call option is $165 and time to maturity is six months and the volatility of the BBB stock is 25%.
i. Find the (theoretical) value of the call option using BSM valuation model.
ii. If the stock price decreases by $1, how will the value of call option will change? (Be specific, such as “as the price of stock decreases by $1, the price of call option will increase/decrease by $?, because…”