question d and e please.

a) Discuss whether it could ever be optimal to exercise a call option on a non-dividend paying stock before the maturity. What about a put option? Reconcile differences (if any) between your answers to the two questions. The price of a call option on a stock XYZ with exercise price $40 and maturity 1 year is $3, a corresponding put trades at $7, the current stock price is $35 and the continuously compounded interest rate is 5%. b) Can you make arbitrage profit given the above prices? If so, outline the details of your strategy. c) Consider a forward contract on a stock XYZ with delivery price $40 and delivery date in 1 year. What is the value of the contract today? Assuming that it is the put option on XYZ that is mispriced, what is the value of the flexibility to walk away from the forward agreement before the delivery date? Interpret your result. You own 1000 shares of Garstang Cheeses (GC) stock. One share is worth $100. In 1 year, the stock price will either increase to $125 or decrease to $80. The stock pays no dividend. The annually compounded riskless interest rate, at which investors can borrow and lend, is 5%. d) Use a 1-period binomial model to calculate the exercise price for a call option on the GC stock with maturity of 1 year that currently trades at $5.82. e) Now, assume that the GC stock price is distributed log-normally such that you can use the Black-Scholes formula to price options. What is the value of a call option with the exercise price of E104 and maturity of 1 year, assuming the volatility of stock returns (o) of 0.223, continuously compounded interest rate of 5% and given the current stock price of E100? If the stock price became extremely high, what would be the difference between the price of the stock and the value of the considered option