1. Suppose that continuously compounded returns are normally distributed. A stock currently trades for $100, with an instantaneous expected return of 9.3% and standard deviation of 16%. What is the expected percent rate of return to be earned over a one-year period? (round to two decimal places in percent form, so that "0.10435" would be entered as "10.44").

2. Consider a deep-in-the money European put option. Which of the following statements is true?

A. An increase the volatility of the underlying shares will generally not affect the option price.

B. This option may be worth less than an American put option with the same terms

C. Black-Scholes option price formula will tend to overvalue this option

D. The binomial model will tend to undervalue this option.