Question: Please explain clearly with workings. Thanks consider puts and calls on a share with spot price of $60. Strike price is $64. The riskfree interest

Please explain clearly with workings. Thanks

consider puts and calls on a share with spot price of $60. Strike price is $64. The riskfree interest rate is 5% per annum with continuous compounding.

Black-Scholes-Merton model: Furthermore, assume that the volatility of the underlying asset is 15%.

i. What is the Black-Scholes-Merton price of a four-month European call option? [1 mark]

j. What is the Black-Scholes-Merton price of a four-month European put option? [1 mark]

k. Show whether the put-call-parity holds for the European call and the European put prices you calculated in i. and j. [1 mark] l. Without calculations: What would happen to the option prices you calculated in i. and j. if the interest rate drops to 4%? Why?

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