a. Look at Table 16.2. Suppose that K = $45 and all other inputs remain the same. What is the price of a call option? What is the price of a put option?

b. Look at Table 16.2. Suppose that u = 1.30 and all other inputs remain the same. What is the price of a call option? What is the price of a put option?

Table 16.2

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Inputs for the Two-Period BOPM So u d r₂ FKT К T |||||||||||| = = $50 1.20 .85 8% $55 2 Stock price today Up factor (u > 1) per period Down factor (d< 1) per period Risk-free interest rate per period Strike price Periods to option expiration