If the risk-free rate equals 6 percent and the standard, Financial Management

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If the risk-free rate equals 6 percent and the standard

A particular stock sells for $27. A call option on this stock is available, with a strike price of $28 and an expiration date in four months. If the risk-free rate equals 6 percent and the standard deviation of the stock's return is 40 percent, what is the price of the call option?

Next, recalculate your answer assuming that the market price of the stock is $28. How much does the option price change in dollar terms? How much does it change in percentage terms?

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Financial Management: If the risk-free rate equals 6 percent and the standard

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