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State the intrinsic value and the speculative premium

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Reference no: EM13200142

You are given the following data for options on a common stock;

S = $102  X = $75   r = 2.5% T = 3 months σ = .2

a. Use the Black-Scholes Option Pricing Model to find the price of the options.

(i) Find 2079_Black-Scholes Option Pricing Model.png and 945_Black-Scholes Option Pricing Model1.png

(ii) Use your answers from a(i) to find N(d1) and N(d2).  Note:  Round your answers to 2 decimal places before looking the values up in the tables.

(iii) Use the Black-Scholes OPM to find C.

(iv) Use the put-call parity relationship to find the value of C.

b. State the intrinsic value and the speculative premium for the call and put options. Why is the speculative premium so small for each option?

Reference no: EM13200142

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