3. Since you want to price the Percs at the common stock price, the increase in value of the Percs produced by the difference in the present value of (1) and (2) has to be offset by the Percs cap. Since the cap is a call, you first need to obtain the stock volatility. Solve for the implied volatility in the IBM Leaps option. The time to expiration and the interest rate are given in the assignment. Note that Leaps are American options. You can use the Financial Options Calculator to compute their implied volatility.