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Basic Question 10 of 12
Consider a stock that trades for $75. A put on this stock has an exercise price of $70 and it expires in 150 days. If the continuously compounding interest rate is 7% and the standard deviation for the stocks return is 0.35, compute the price of the put option according to Black-Scholes-Merton model.
Below is the relevant part of the cumulative probabilities table for a standard normal distribution.
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Learning Outcome Statements
identify assumptions of the Black-Scholes-Merton option valuation model;
interpret the components of the Black-Scholes-Merton model as applied to call options in terms of a leveraged position in the underlying;
describe how the Black-Scholes-Merton model is used to value European options on equities and currencies;
CFA® 2025 Level II Curriculum, Volume 5, Module 32.