Valuation of European Call Option using Black-Scholes Model

ABC Corp. is considering the valuation of a European call option with a strike price of $50 on its stock, which is currently trading at $60. The option has 3 months until expiration. The risk-free rate is 3% per annum, and the stock has a volatility of 30% per annum. According to the Black-Scholes Model, what is the estimated value of the call option?

To solve this, apply the Black-Scholes formula:

C = S₀N(d₁) - Xe^-rTN(d₂)

where:

d₁ = rac{ln(S₀/X) + (r + rac{ ext{σ}^2}{2})T}{ ext{σ}√T}

d₂ = d₁ - σ√T

N(d₁) and N(d₂) represent the cumulative distribution function for a standard normal distribution.