Group $\text{'}$B$\text{'}$

Attempt all questions.

$)=(60$

The stock of C Company and T Company are expected to have the following probability distributions with respect to market price per share $6$ months hence.

$\backslash$table$[[\backslash$table$[[$Probability of$],[$occurrence$]],$C Co$,$T Co$],[0\mathrm{.}15,$Rs$\mathrm{.}34,$Rs$\mathrm{.}22],[0\mathrm{.}20,38,28],[0\mathrm{.}30,40,36],[0\mathrm{.}20,42,44],[0\mathrm{.}15,46,50]]$

Options exist for each of these stocks, and both have an exercise price of Rs$.38$ and an exercise date $6$ month from now.

i$.$ What is the expected value of market price per share $6$ months hence for two companies?

ii$.$ What is the expected value of the option price for two options at expirations, assuming the options are held to this time?

$12.$ a$)$ Consider an exchange$-$traded call option contract to buy $500$ shares with a strike price of $$40$ and maturity in four months. Explain how the terms of the option contract change when there is

i$.$ A $10\%$ stock dividend

ii$.$ A $10\%$ cash dividend

iii. A $4-$for$-1$ stock split

b$)$ Explain the differences between an American option and a European option. What do they have in common?