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2. A certain share price is 10 today and it can move to either 15 or 8 in six months. The interest rate is 8%

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2. A certain share price is 10 today and it can move to either 15 or 8 in six months. The interest rate is 8% continuously compounded and the strike price is 16. (a) Find the fair price for a call and a put option (both having the strike price 16). [10] (b) State the Put-Call parity formula and check that this is true for the values of the call and put option you found at part (a) above. [4]

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