A stock’s current price S is $100. Its return has a volatility of ? = 25 percent per year. European call and put options trading on the stock have a strike price of K = $105 and mature after T = 0.5 years. The continuously compounded risk- free interest rate r is 5 percent per year.
1. The Black-Scholes-Merton model gives the price of the European call as:
a) $5.99
b) $8.26
c) $10.00
d) $12.34
e) None of these answers are correct.
2. The Black- Scholes- Merton model gives the price of the European put as:
a) $5.79
b) $5.99
c) $8.40
d) $9.88
e) None of these answers are correct.