1. The price of Dimension Inc. stock will be either $26 or $16 at the end of the year. Call options are available with one year to expiration. T-bills currently yield 5 percent. The current price of Dimension stock is $20. Use the Binomial model to find the value of the call option if the exercise price is $22 per share
2. Use the Black-Scholes model to find the price for a call option with the following inputs: (1) current stock price is $30, (2) exercise price is $32, (3) time to expiration is 4 months, (4) annualized risk-free rate is 3%, and (5) variance of stock return is 0.25.
3. Using the information from question 2, find the value of a put with a $32 exercise price.