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Betty and Bob speculate that 1 year from now the price, X, and probability, p,...

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Finance

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Betty and Bob speculate that 1 year from now the price, X, and probability, p, of their favorite stock BXB will be as per table. X 30 40 50 60 .2 .3 Interest rates over the period are 5% per annum continuously compounded. 1. What is the expected price of the stock one year from now? 2. What is the expected value of a Call Option with exercise price of 40 at expiration, one year from now? 3. What is the value of the Call in #2 at the present time? 4. What is the expected value of a Put Option with exercise price of 40 at expiration, one year from now? 5. What is the value of the Put in #4 at the present time? 6. What is the value of a Straddle with exercise price of 40 at the present time? 7. Betty and Bob buy one Straddle for $6.5 per share quoted price. They sell it next day at a price which equals it value (that is in a rational world). What is their profit or loss in total dollars? 8. Bertha buys BXB for $45 per share with the intension of selling it in one year. There are no dividends. Explain mathematically why this is a good or bad investment

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