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When the non-dividend paying stock price is $20, the strike price is $20, the risk-free rate is 6%, the volatility is 20% and the time to maturity is 3 months, which of the following is the price of a European call option on the stock?
(Note: N(*) represent cumulative normal density function.)
a. 20*N(0.1) - 19.7*N(0.2)
b. 19.7*N(0.2) - 20N*(0.1)
c. 19.7*N(0.1) - 20N*(0.2)
d. 20N*(0.2) - 19.7N*(0.1)

Respuesta :

Answer:

The correct option is d.20N(0.2)-19.7N*(0.1)

Explanation:

Given the following inputs:

Stock Price 20

Strike Price 20

Time to maturity: 0.25

Risk-free Rate 0.06

Dividend Yield 0

Annualized volatility 0.2

Cost of Carry 0.06

We get the following outputs:

d1=0.2

d2=0.1

N(d1)=0.57925971

N(d2)=0.53982784

Call=0.94937723

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