Question: 14.5 Suppose S = $40, K = $40, = 0.30, r = 0.08 and = 0. a) What is the price of a standard European

14.5 Suppose S = $40, K = $40, = 0.30, r = 0.08 and = 0. a) What is the price of a standard European call 2 years from expiration? (answer: 9.61) b. Suppose you have a compound call giving you the right to pay $2 in 1 year for buy the option in a). For what share prices will you exercise this option? (answer: s_1 > 31.72)

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