The price of HighTech (HT) stock is $534.25. Your broker tells you that you coul

Question

The price of HighTech (HT) stock is $534.25. Your broker tells you that you could buy a European call
option on HT with a strike price of $750 and 325 days until maturity for $54. Your research indicates that
the standard deviation of HT’s stock returns is 55% and you know that the continuously compounded risk
free rate is 5%. Would you be willing to buy such an option for the price quoted by your broker (i.e.,
$54)? Assume one year has 365 days and HighTech doesn’t pay any dividends. (Dividends complicate
option pricing.)
Note: Round d1 and d2 to the nearest values in the cumulative normal distribution table. The table is
posted on uLearn.

Explanation / Answer

The price of HighTech (HT) stock is $534.25. Your broker tells you that you coul

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