Problem 1. Use the Black-Scholes Model to find the price for a call option with the following inputs: (1) current stock price is $30, (2)excise price is $35, (3) time to expiration is 4 months, (4)annualized risk-free rate 5%, AND (5) variance of stock return is 0.25.
Problem 2. The current price of a stock is $15. In 6 months, the price will be either $18 or $13. The annual risk-free rate is 6 percent. Find the price of a call option on the stock that has an excercise price of $14 and that expires in 6 months. Hint, use the daily compounding.