Complete the mcq:
Q1. A stock price is currently $100. Over each of the next two three-month periods it is expected to increase by 10% or fall by 10%. Consider a six-month European call option with a strike price of $105. The risk-free rate is 8%. What is the risk-neutral probability of a 10% rise in both quarters?
a. 0.10
b. 0.24
c. 0.36
d. 0.60
e. 0.84
Q2. A stock price is currently $100. Over each of the next two three-month periods it is expected to increase by 10% or fall by 10%. Consider a six-month European call option with a strike price of $105. The risk-free rate is 8%. What is the value of the call option?
a. $6.25
b. $5.55
c. $5.00
d. $4.50
e. $4.05