Use your spreadsheet from Question 1 to price a call option with a stock price of $80, a strike price of $75, 3 months to maturity, a 5% risk-free rate of return, and a standard deviation of return of 20% on the underlying stock. Check it against the solution in Question 2.
Question 1
Write a computer spreadsheet that computes the Black-Scholes value on row 4 as a function of its five inputs (in the first two rows). This will teach you more about the Black-Scholes formula than all the pages in this book. Recall that the normal distribution function is normsdist.
Question 2
Price a call option with a stock price of $80, a strike price of $75, 3 months to maturity, a 5% risk-free rate of return, and a standard deviation of 20% on the underlying stock.