Question $1(2$ marks$)$

Explain the Black Scholes Formula

Question $2(5$ marks$)$

Let $S=$$$41,K=$$$40,=0\mathrm{.}3,r=8\%,T=3$ months and $=0.$ Compute the Black Scholes call price.

Question $3(7$ marks$)$

Using the same inputs as in Question $2$ and with a put price of $$1\mathrm{.}607,$ show how to compute the put price using Black

Scholes then by using the Put$-$Call parity principles.