You Calculate the Black-Scholes Value of a Call Option as $3.50

Multiple Choice

You calculate the Black-Scholes value of a call option as $3.50 for a stock that does not pay dividends, but the actual call price is $3.75. The most likely explanation for the discrepancy is that either the option is ________ or the volatility you input into the model is too ________.

A) overvalued and should be written; low
B) undervalued and should be written; low
C) overvalued and should be purchased; high
D) undervalued and should be purchased; high