Risk A1 Q5-2
Today, is January 4, 2016. IBM common stock is selling at $135.95 per share. The stock has a dividend yield of 4% per year. The following table contains the monthly stock prices for IBM shares during the last 12 months.
Month (2015)
IBM Share Price
January
148.46
February
157.92
March
156.51
April
167.04
May
166.69
June
159.82
July
159.16
August
146.52
September
143.62
October
138.78
November
139.42
December
137.62
A call option with a March 18, 2016 expiration date and an exercise price of $130 is currently trading at $6.50. Each option entitles the holder to purchase 100 IBM shares. The risk-free rate is 0.58%, compounded continuously. Shares and options can only be bought and sold in whole numbers. Note that 2016 is a leap year.
2. Based on the market price of $6.50, derive the implied volatility on the IBM shares. Obtain your answer to four decimal places (or two decimal places in percentage).
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