Consider a European call. S0 = 40,X = 45, = 30% per year, T = 4 months = 13 year. The risk-free rate per annum r is such that e^r1 = 1.05. The stock will pay no dividends over the four month life of the option. Suppose that the stock prices follows a geometric Brownian motion.

(a) Instead of approximating the stock price process as a binomial tree, use the Black- Scholes model to value the call.

B. Use the put-call parity for European options to determine the value of a European put option on the stock with an exercise of $45 and a maturity date in four months.