What is the value of a six month european

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Company A is currently trading at $100 per share. After examining the stock of Company A, you have determined that in each 3 month period its price will either increase to 25% or decrease by 20%. The interest rate is 3% every 3 months.

Required:

a)A six month European call option on Company A has an exercise price of $90.What is the value of this call option?

b)cput option on Company A with an exercise price of $90?

c)Verify that put-call parity holds.

d)Now suppose that Company A pays a dividend equal to $25 in three months.What is the value of a six month American call option on Company A with an exercise price of $90? Would you ever want to exercise this option early?

Reference no: EM132564883

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