The Call Option Pricing Formula

Black and Scholes showed that the value of a European-style call option on a non- There's a Black-Scholes dividend paying stock, C, can be written as follows: calculator (and a lot more)

where S, E, and e-Rt are as we previously defined them and N(d1) and N(d2) are probabilities that must be calculated. More specifically, N(d1) is the probability that a standardized, normally distributed random variable (widely known as a "z" variable) is less than or equal to d1, and N(d2) is the probability of a value less than or equal to d2. Determining these probabilities requires a table such as Table 24.3.

To illustrate, suppose we are given the following information:

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