What is the value of call option

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Reference no: EM132025787

A share of WTB stock sells for $50 and has a standard deviation of returns of 20 percent per year. The current risk free rate is 5% and a call option with a strike price of $50 expires in 3 months.

a. Using the Black-Scholes formula, what is the value of the call option?

b. If you found this option describe above selling for $1.50 more then what you calculated in part (a) above, would you want to buy it or sell it? Explain.

c. If you found a different option that had an exercise price of $55 and expired in 2 months, would you expect this option to have a higher or lower price than what you found in part (a). Explain without using any calculations.

Reference no: EM132025787

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