1. Look back to the companies listed in Table 7-3 (41.0K) . Most of these companies are covered in the Standard & Poor's Market Insight Web site (http://www.mhhe.com/edumarketinsight), and most will have traded options. Pick at least three companies. For each company, download "Monthly Adjusted Prices" as an Excel spreadsheet. Calculate each company's standard deviation from the monthly returns given on the spreadsheet. The Excel function is STDEV. Convert the standard deviations from monthly to annual units by multiplying by the square root of 12.
   1. Use the Black–Scholes formula to value 3, 6, and 9 month call options on each stock. Assume the exercise price equals the current stock price, and use a current, risk-free, annual interest rate. To check your answer, you can use the "live" spreadsheet in Table 21-2 (29.0K) .
   2. For each stock, pick a traded option with an exercise price approximately equal to the current stock price. Use the Black–Scholes formula and your estimate of standard deviation to value the option. How close is your calculated value to the traded price of the option?
   3. Your answer to part (b) will not exactly match the traded price. Experiment with different values for standard deviation until your calculations match the traded options prices as closely as possible. What are these implied volatilities? What do the implied volatilities say about investors' forecasts of future volatility?

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