1. Suppose the price of a stock falls.

a. What will happen to the price of a call option written on that stock?

b. What will happen to the price of a put option written on that stock?

2. Suppose the risk free rate rises.

a. What will happen to the price of a call option written on that stock?

b. What will happen to the price of a put option written on that stock?

3. a. Suppose the strike price of an option is $60.

a. Will the value of a call with a $55 strike price be higher or lower than for the $60 call?

b. Suppose the strike price of an option is $60. Will the value of a put with a $55 strike price be higher or lower than for the $60 put?

c. What happens to the value of an option when volatility increases?

PLEASE EXPLAIN ALL ANSWERS *