3. (56 points) The following quotes were observed for options on a given stock on November 3. These are American calls and puts. Use the information to answer the following questions:

STOCK PRICE	STRIKE PRICE	CALL December	PUT December
98	95	16.0	14.0
98	100	8.0	28.0

The risk-free rate was 6%. The time to expiration is 146 days for the contract. The standard deviation of the stock is 30%.

a. (8 points) Draw up the profit/loss graph for short calls maturing in December for the two strike prices ($95 and $100) on one graph. Be sure to identify and plot the exact break-even point, maximum and minimum profit/loss.

b. (4 points) Would you exercise the call option with X = $100 now if the dividend of $2 per share is scheduled to be paid in a month? Back up your answer.

c. (4 points) What is the time value of the 95 put?

d. (4 points) What is the lower and upper bound of the 95 put?

e. (8 points) Calculate the Black-Scholes put option price for the contract with a strike price of $95 and tell mewhether the contract is underpriced or overpriced.