Question: Part 1 Part 2: the Put-Call Parity Answer Part (2) Here: Up (percentage of price change) Down (percentage of price change) 40% Initial stock price,

Part 1 Part 2: the Put-Call Parity Answer Part (2) Here:

Part 1 Part 2: the Put-Call Parity Answer Part (2) Here: Up (percentage of price change) Down (percentage of price change) 40% Initial stock price, S_0 interest rate Exercise price Time to maturity-years Stock price get formula Bond price Question 4 (20 points). Suppose there is also a 1-year European put option on the same stock as in Question 3 with exercise price S30. The current stock price is also $25 and the stock price, in 1 year, will be either $35 (up by 40%) or $20 (down by 20%). The interest rate is 8%. This stock does not pay dividend. What is the value of e put option? Please use one-period binomial tree model and assume discrete discounting. (10 points) What is put-call parity in option pricing? What needs to be true in order for put-call parity to hold? Briefly explain the key economic concept behind put-call parity. (10 points) Pat option payoffs Price??? Finding replicating portfolio for the put Coefficients Constant get formula Put Price

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