Consider a stock priced at 100 with a volatility of 25 percent. The continuously compounded risk- free rate is 5 percent. Answer the following questions about various options, all of which have an original maturity of one year.
a. Find the premium on an at-the-money pay- later call option. Then determine the market value of the option nine months later if the stock is at 110.
b. Find the value of F and K on a break forward contract. Then determine the market value of the break forward nine months later if the stock is at 110.
c. Find the premium on an at-the-money contingent-pay call option. Then determine the market value of the option nine months later if the stock is at 110.