1. A European call option on the stock of ImpoExpo, which pays no dividend, has an exercise price of $56 and a time to maturity of one year. The current stock price is $59. In one year's time, the price of the stock will rise to $65 or fall to $53. The risk-free interest rate is 5%. Calculate the call option price.    
   You observe a put option on ImpoExpo's stock, with an exercise price of $56 and a time to maturity of one year, trading at $1.56. Can you construct a portfolio where you make a risk-free profit in a perfect market? Demonstrate your portfolio's net payoff when the stock price rises or falls.

Answer rating: 100% (QA)

To calculate the call option price we can use the BlackScholes formula C S Nd1 X ertNd2 where S curr... View the full answer