1) Consider a European call option on a non-dividend-paying stock where the stock price is $40, the strike price is $40, the risk-free rate is 4% per annum, the volatility is 30% per annum, and the time to maturity is six months. Calculate the value of call option using the Black-Scholes formula, giving your answer to 2 decimal places

2)

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% per annum, the volatility is 25% per annum, and the time to maturity is four months. (20 points)

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

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

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

Verify that put-call parity holds. (Hint: Substitute the European put and call prices into the put call parity equation and demonstrate that the right hand side of the equation is equal to the left hand side of the equation.)