1. What does the Black-Scholes-Merton stock option pricing model assume about the probability distribution of the stock price in one year? What does it assume about the continuously compounded rate of return on the stock during the year?
2. The volatility of a stock price is 30% per annum. What is the standard deviation of the percentage price change in one trading day?
3. Explain the principle of risk-neutral valuation.
4.Calculate the price of a 3-month European put option on a non-dividend-paying stock with a strike price of $50 when the current stock price is $50, the risk-free interest rate is 10% per annum, and the volatility is 30% per annum.