1) The price of Ervin Corp. stock will either be $60 or $80 at the end of the year. Call options are available with one year until expiration. T-bills currently yield 3.26 %. Suppose the current price of Ervin stock is $73. (Round answer to 2 decimal places, round intermediate calculations to 5 decimal places)
a) What is the value of the call option if the strike price is $75 per share?
b) What if the strike price is $55 per share?
Answers:
a) Call Premium -
b) Call Premium -
2) A stock is currently selling for $40 per share. A call option with an exercise price of $45 sells for $3.3 and expires in three months. If the risk-free rate of interest is 3.3 % per year, compounded continuously, what is the price of a put option with the same exercise price and time until expiration? (Round answer to 2 decimal places, do not round the number 'e' in your calculation)