Consider a stock that trades for $75. A put on this stock has an exercise price of $70 and it expires in 150 days. If the continuously compounding interest rate is 7% and the standard deviation for the stocks return is 0.35, compute the price of the put option according to Black-Scholes-Merton model.

Below is the relevant part of the cumulative probabilities table for a standard normal distribution.

Correct Answer: $3.63

d₁ = {ln(75/70) + [0.07 + (0.35²/2)] x (150/365)} / (0.35 (150/365)^1/2) = 0.5479
d₂ = 0.5479 - 0.35 x (150/365)^1/2 = 0.3235
N(d₁) = N(0.55) = 0.7088
N(d₂) = N(0.32) = 0.6255
p = $70 x e ^{-0.07 x (150/365)} x (1 - 0.6255) - $75 x (1 - 0.7088) = $3.63