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Consider a European option on a non-dividend-paying stock when the stock price is $30, the...

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Finance

Consider a European option on a non-dividend-paying stock when the stock price is $30, the exercise price is $29, continuously compounded risk-free interest rate is 5%, volatility is 25% per annum, and time to maturity is 4 months (assume 4 months equals 120 days).

  1. Find the value of a call option at the strike price of $29 using the Black-Scholes option pricing model. Show all steps.
  2. Find the value of a put option at the strike price of $29 using the Black-Scholes option pricing model. Show all steps.
  3. Show that put-call parity holds using the put and the call at the strike price of $29. (you need to find the value of both sides of the put-call parity for this.)

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