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**Basic Question 1 of 12**

A forward contract is priced at $129. A European option on the forward contract has an exercise price of $135 and expires in 49 days. The continuously compounded risk-free rate is 3.75% and volatility is 0.25. Calculate the prices of a call option and a put option on the forward contract.

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**User Contributed Comments**
4

User |
Comment |
---|---|

danlan2 |
129 is the future price. |

NIKKIZ |
It seems to me that there's a bit missing from the calculation of N(d1). I think it should be: {ln(129/135)+[0.0375+(0.25^2/2)]0.13425}/[0.25 X 0.13425^0.5]. The answer would be -0.39553. Am I missing something? |

Greatrussian |
NIKKIZ: The risk free rate 0.0375 should not be used in the calculation of d1. |

maxsouto |
NIKKIZ: The value of an option can't be less than 0 |

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**Learning Outcome Statements**

describe how the Black model is used to value European options on futures;

describe how the Black model is used to value European interest rate options and European swaptions;

*CFA® 2024 Level II Curriculum, Volume 5, Module 34.*