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A stock currently sells for $50. In six months it will either rise to $60 or...

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Finance

A stock currently sells for $50. In six months it will eitherrise to $60 or decline to $45. The continuous compounding risk-freeinterest rate is 5% per year.

a) Find the value of a European call option with an exerciseprice of $50.

b) Find the value of a European put option with an exerciseprice of $50, using the binomial approach.

c) Verify the put-call parity using the results of Questions 1and 2.

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Transcribed Image Text

A stock currently sells for $50. In six months it will eitherrise to $60 or decline to $45. The continuous compounding risk-freeinterest rate is 5% per year.a) Find the value of a European call option with an exerciseprice of $50.b) Find the value of a European put option with an exerciseprice of $50, using the binomial approach.c) Verify the put-call parity using the results of Questions 1and 2.

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