Answer Happy

3. The Black-Scholes option pricing model The Black-Scholes option pricing model (OPM) was developed in 1973. The creation of the Black-Scholes OPM played a significant role in the rapid growth of options trading. the Under the assumptions used by Fischer Black and Myron Scholes to derive the Black-Scholes model, if the option price is price found using the Black-Scholes model, arbitrage opportunities will exist. According to the Black-Scholes Option Pricing Model, as the time to expiration, t, increases, the value of the call option Parrot Transport Corp. has a current stock price of $28.00. A call option on this stock has an exercise price of $28.00 and 0.25 year to maturity. The variance of the stock price is 0.09, and the risk-free rate is 5%. You calculate d, to be 0.18 and N(0.18) to be 0.5714. Therefore, dy will be 0.03 and N(0.03) will be 0.5120. Using the Black-Scholes Option Pricing Model, what is the value of the option? (Note: Use 2.7183 as the approximate value of e.) $1.408 $1.877 O $2.065 52.159