In: Finance
Consider an option on a non-dividend-paying stock when the stock price is $40, the strike price of $38, the risk-free interest rate is 10% per annum, the volatility is 35% per annum, and the time to maturity is five months.
1. What is the price of the option if it is a European call?
2. What is the price of the option if it is a European put?