Question 5 (20 points) Part I (1) Can the Black-Scholes pricing model be used to price the American call option on a non- dividend-paying stock? If yes, explain. If not, what model can be used? (2 marks) (2) Can the Black-Scholes pricing model be used to price the American put option on a non- dividend-paying stock? If yes, explain. If not, what model can be used? (2 marks) Part II Assume that a stock is due to go ex-dividend in 1.5 months. The expected dividend is 50 cents. Consider an option on this stock when the stock price is $30, the exercise price is $29, the risk- free interest rate is 5% per annum, the volatility is 25% per annum, and the time to maturity is four months. What is the price of the option if it is a European call? (16 marks) Question 5 (20 points) Part I (1) Can the Black-Scholes pricing model be used to price the American call option on a non- dividend-paying stock? If yes, explain. If not, what model can be used? (2 marks) (2) Can the Black-Scholes pricing model be used to price the American put option on a non- dividend-paying stock? If yes, explain. If not, what model can be used? (2 marks) Part II Assume that a stock is due to go ex-dividend in 1.5 months. The expected dividend is 50 cents. Consider an option on this stock when the stock price is $30, the exercise price is $29, the risk- free interest rate is 5% per annum, the volatility is 25% per annum, and the time to maturity is four months. What is the price of the option if it is a European call? (16 marks)