Reference no: EM13213223
Problem
The following information is given about options on the stock of a certain company:
S0 = $20, X =$20, r =5% (c.c.), T = 0.5 year, s = 0.20
No dividends are expected. One option contract is for 100 shares of the stock. All notations are used in the same way as in the Black-Scholes-Merton Model.
Answer the following questions:
1. What is the European call option price and European put option price, according to the Black-Scholes model?
2. What is the cost of buying a protective put?
3. What is the cost of writing a covered call?
4. What will be the payoff and profit of the protective put if the stock price on maturity is $16, $18, $20, $22, or $24?
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