A) You try to price the options on XYZ Corp. The current stock price of XYZ is $100/share. The risk-free rate is 5%. You project the stock price of XYZ will either be $90 or $120 in a year. Assume you can borrow or lend money at the risk-free rate. Use risk-neutral approach to price the 1-year call option on XYZ Corp with the strike price of $105. (Attention: using a wrong approach will cost you all the credits)
B) You try to price the options on XYZ Corp. The current stock price of XYZ is $100/share. The risk-free rate is 5%. You project the stock price of XYZ will either be $90 or $120 in a year. Assume you can borrow or lend money at the risk-free rate. Use risk-free portfolio approach to price the 1-year put option on XYZ Corp with the strike price of $105. (Attention: using a wrong approach will cost you all the credits)
C) Use put-call parity to verify the call and put option prices you just calculated in A and B.