A. Consider the information the information below and answer the questions that follow i. Calculate The Option value for a two period Binomial European Call option with the following terms and the time values ( 6 MARKS) Current Price of underlying asset k100 Strike price of underlying asset k80 One period risk free rate of return 10% Stock price can either go up or down by 15% ii. compare the results if the stock price can go up or down by 30% (4 MARKS) B. According to Emanuel Derman, writing in the Journal of Derivatives, Winter, 2000, p. 64 he says Good theories, like Black-Scholes-Merton, provide a theoretical laboratory in which you can explore the likely effect of possible causes. They give you a common language with which to quantify and communicate your feelings about value. Riding on that background and given the following information Current Price of underlying asset k100 Strike price of underlying asset k80 One period risk free rate of return 10% Stock price can either go up or down by 20% Time period 6 months i. Determine the call value (6 MARKS) ii. What is the time value for holding on to the option (2 MARKS) iii. What is the Put Option Price using the PUT-CALL Parity relationship (2 MARKS) C. A financial asset ABC which is the underlying asset for a futures contract has a settlement date 6 months from now. As an investor, you know the following information about the Financial Asset and the futures contract: In the cash market ABC is selling for k80 dollars ABC pays k8 per year in two semi-annual payments of k4 and the next semiannual payment is due exactly 6 months from now. The current 6 months interest at which funds can be borrowed or loaned is 6% per annum. Required: i. What is the equilibrium futures price (4 MARKS) ii. What action would you take if the futures price is K83 (3 MARKS) iii. What action would you take if the futures price is K76 (3 MARKS)