Question

In: Finance

A non-dividend-paying stock is trading at 72 and has volatility of 30% per annum. Consider an...

A non-dividend-paying stock is trading at 72 and has volatility of 30% per annum. Consider an option on the stock with strike price $75 and maturity six months. The risk-free rate is 2% per annum (continuously compounded).

(a) What is the price of the option if it is a European call?

(b) What is the price of the option if it is a European put?

(c) What is the price of the option if it is an American call?

Solutions

Expert Solution

Part (a)

The price of the option is $6.531

The formula used are:

Part (b)

The price of the option is $8.784

The formula used are:

Part (c)

The price of the American Call option is $6.531

The formula used are:

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