1. Someone offers you a call option with three months to maturity for $2.00. The strike price is $40 and the underlying stock is currently trading for $35. If the risk free rate is 0%, at what price must the identical put option be trading for?

2. Consider a European call option on stock whose price today is $50. The option expires at T=1 and has a strike price of $50. The price of the stock will be $55 with probability 75% or $48.5 with probability 25%. Assume that the 1-year interest rate R= 6%. Calculate the price of this option today.

#3. Consider a European put option on stock whose price today is $10. The option expires in one year and has a strike price of $10. It is believed that in a year the price of the stock will be either $11 or $9. Assume further that the 1-year interest rate R= 5%. Calculate the price of this option today.