An Analyst Wants to Use the Black-Scholes Model to Value

Multiple Choice

An analyst wants to use the Black-Scholes model to value call options on the stock of Heath Corporation based on the following data:
•The price of the stock is $40.
•The strike price of the option is $40.
•The option matures in 3 months (t = 0.25) .
•The standard deviation of the stock's returns is 0.40,and the variance is 0.16.
•The risk-free rate is 6%.
Given this information,the analyst then calculated the following necessary components of the Black-Scholes model:
•d? = 0.175
•d? = 0.025
•N(d?) = 0.56946
•N(d?) = 0.49003
N(d₁) and N(d₂) represent areas under a standard normal distribution function.Using the Black-Scholes model,what is the value of the call option?

A) $2.81
B) $3.12
C) $3.47
D) $3.82
E) $4.20