q 88298 uses the BSM formula from page 266 to find the value of a call. pg 266 says in a professors note that we are likely not responsible for this formula. can someone confirm that the below calculation is not something we need to have memorized? d1=(ln(100 / 100) + [0.07 + (0.04 / 2.5)] / (0.2ã0.5) = 0.32 and using the cumulative Z table, N(0.32)=0.6255. d2=0.32 − 0.2ã0.5 = 0.18, so from the cumulative Z table, N(d2)=N(0.18) = 0.5714. So the call value is 100(0.6255) − 100e(−0.07 ~ 0.5)(0.5714) = $7.38.
No need to memorize. Just memorize the assumptions.
assumptions you mean…? lognormal, continois/constant rfr, no volatility, frictionless, no cash flow, and european
yes