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What would be the value of the call option be

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Problem 1: Yu has just been introduced to the Black-Scholes pricing model and want to give it a try; you would like to use it to calculate the value of the call option on Flight-Center shares. Currently, Flight-Center ordinary shares are selling for $25 per share, and the call option you are considering has an exercise or strike price of $20 with a maturity of three months or 0.25 year. In addition, you have calculated the (annualized) variance in its share returns to be 0.09. if the risk-free rate of interest is 4%, what would be the value of this call option be? How could your answer change if there was only one month left to expiration, but everything else remained the same? Now, what would happen to the value of this call option if the annualized variance in share returns was 0.15 rather than 0.09?

Reference no: EM132844105

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