1" (Hull, p.290, 12-9) A stock price has an expected return of 16% and a volatility of 35%. The current price is $38 a) What is the probability that a European call option on the stock with an exercise price of $40 and a maturity date in six months will be exercised? b) What is the probability that a European put option on the stock with the same exercise price and maturity will be exercised? 2. (Hull, p.292,12-26) 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 a) What is the price of option if it is a European call? b) What is the price of option ifit is a European put? c) Verify that put-call parity holds 3. (Hull, p.266,11-9) A stock price is currently $50. It is known that at the end of two months it will be either $53 or $48. The risk free interest rate is 10% per annum with continuous compounding. What is the value of a two-month European call option with a strike price of $49? Use no-arbitrage arguments 4. (Hull, p.267,11-17) A stock price is currently $40. Over each of the next two three-month periods it is expected to go up by 10% and down by 10%. The risk free interest rate is 12% per annum with continuous compounding. a) What is the value of a six-month European put option with a strike price of S42? What is the value of a six-month American put option with a strike price of S42? b)