Consider an option on a non-dividend-paying stock when the stock price is $30, the exercise price is
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Consider an option on a non-dividend-paying stock when the stock price is $30, the exercise price is $29, the risk-free interest rate is 5%, the volatility is 25% per annum, and the time to maturity is four months.
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 an American call?
c. What is the price of the option if it is a European put?
d. Verify that put-call parity holds.
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