Calculate the price of a six-month European put option on a non-dividend-paying stock with an exercise price of $90 when the current stock price is $100, the annualized riskless rate of interest is 3%, and the volatility is 40% per year. 2. Calculate the price of a six-month European call option with an exercise price on this same stock a non-dividend-paying stock with an exercise price of $90. Problem 2. Re-calculate the put and call option prices for problem 1, assuming that a dividend of $1.50 is expected two months from now. Problem 3. Consider an option on a non-dividend-paying stock when the stock price is $30, the exercise price is $29, the risk-free interest rate is 5% per year, the volatility is 25% per year, and the time to maturity is four months. 1. What is the price of the option if it is a European call? 2. What is the price of the option if it is an American call? 3. What is the price of the option if it is a European put? 4. Verify that put–call parity holds.

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Convert annualized values to semiannual Riskfree interest rate r 3 2 15 per six months Volatility 40 ... View the full answer