You are given the following information concerning options on a particular stock

Question

You are given the following information concerning options on a particular stock: Stock price = $67 Exercise price = $60 Risk-free rate = 4% per year, compounded continuously Maturity = 3 months Standard deviation = 40% per year a. What is the intrinsic value of each option? (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations.) Value Call option $ Put option $ b. What is the time value of each option? (Do not round intermediate calculations and round your final answers to 2 decimal places (e.g., 32.16).) Value Call option $ Put option $

Explanation / Answer

Intrinsic value of Call option = Stock price- Strike price

Intrinsic value of Call option= 67 - 60 = 7

Intrinsic value of Put option= Strike price- Stock price

Intrinsic value of Put option = 60 - 67 = 7

Value of Options from Black Scholes model=

C= Sn (d1) - N (d2) Ke-rt

Calculate d1 and d2 seperately

Where C= Call premium, S= Stock price, K=Strike price, t= time till expiration, r= risk free interest rate,

N= cumulative standard normal distribution, e= exponential term, s= standard deviation, In= natural log

I calculated Call and Put value from the Online Option Calculator i.e

Call value = 10 and Put value = 2

Time value of Call option = Premium - Intrinsic value

Time value of Call option = 10 - 7 = 3

Time value of Put option= 2 - 7 = 5

Thanks

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