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1.Suppose that the spot price of the Canadian dollar is U.S. $0.95 and that the Canadian dollar/U.S. dollar exchange rate has a volatility of 8%

1.Suppose that the spot price of the Canadian dollar is U.S. $0.95 and that the Canadian dollar/U.S. dollar exchange rate has a volatility of 8% per annum. The risk-free rates of interest in Canada and the United States are 4% and 5% per annum, respectively.(6 points)

N(0.0429)=

0.5171

N(-0.0264)

0.4895

N(-0.0429)=

0.4829

N(-0.0264)=

0.5105

N(0.1429)=

0.5568

N(0.0736)

0.5293

N(-0.1429)=

0.4432

N(-0.0736)=

0.4707

N(0.2429)=

0.5960

N(0.1736)

0.5689

N(-0.2429)=

0.4040

N(-0.1736)=

0.4311

a.Calculate the value of a European call option to buy one Canadian dollar for U.S. $0.95 in nine months. (4 points)

Use put-call parity to calculate the price of a European put option to sell one Canadian dollar for U.S. $0.95 in nine months. (2 points)

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