Compute the price of the call

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Question 1: The current price of Natasha corporation stock is $6. In each of the next two years, this stock price can either go up by $2.50 or go down by $2.00. The stock pays no dividends. The one-year risk free rate is 3% and will remain constant. Using the binomial model, calculate the price of a two-year call option on Natasha stock with a strike price of $7.

Question 2: Rebecca is interested in purchasing a European call on a hot new stock, UP, Inc. the call has a strike price of $100 and expires in 90 days. The current price of UP

stock is $120 and the stock has a standard deviation of 40% per year. The risk free interest rate is 6.18% per year. d1=ln[S/PV(K)]/σT1/2+ σT1/2/2 and d2= d1- σT1/2

Using the Black-Scholes formula to compute the price of the call.

Question 3: Use put-call parity to compute the price of the put with the same strike and expiration date.

Reference no: EM132428724

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