Problem
From an on-line-quote system (or from talking with your broker or from WSJ a day later), you know on Oct. 15 that a November European call with a strike price of $40 on Dig Eq (Digital Equipment) sells at 7/8 whereas Dig Eq stock sells at $37. Suppose that there are 5 weeks from Oct. 15 to the expiration date of the call. The risk-free rate is 3% per annum, and there are no dividends from today to November 30. What is the market's assessment of the volatility (the implied volatility) of Dig Eq stock?