3. Madeline Manufacturing Inc.s current stock price is $45 per share. Call options for this stock exist that permit the holder to purchase one share at an exercise price of $35. These options will expire at the end of 1 year, at which time Madelines stock will be selling at one of two prices $20 or $50. The risk-free rate is 5.5%. Using the binomial option pricing model, create a riskless hedged investment and answer the following question:

After the payoffs have been equalized and the riskless hedged investment is created, what is the value of the portfolio in one year? Round your answer to two decimals if needed.

4a. A call option on the stock of Bedrock Boulders has a market price of $7. The stock sells for $28 a share, and the option has a strike price of $26 a share. What is the exercise value of the call option?

4b. What is the option's time value?

5.The exercise price on one of Flanagan Company's options is $14, its exercise value is $22, and its time value is $7. What are the option's market value and the price of the stock?

Option's market value:

Price of the stock:

6. Black-Scholes Model

Assume that you have been given the following information on Purcell Industries:

Current stock price = $15	Strike price of option = $14
Time to maturity of option = 6 months	Risk-free rate = 8%
Variance of stock return = 0.11
d1 = 0.582008	N(d1) = 0.719719
d2 = 0.347487	N(d2) = 0.635887

According to the Black-Scholes option pricing model, what is the option's value? Round your answer to the nearest cent.

7. Black-Scholes Model

Use the Black-Scholes model to find the price for a call option with the following inputs: (1) current stock price is $28, (2) strike price is $35, (3) time to expiration is 2 months, (4) annualized risk-free rate is 6%, and (5) variance of stock return is 0.31. Round your answer to the nearest cent. In your calculations round normal distribution values to 4 decimal places.

8. Binomial Model

The current price of a stock is $18. In 1 year, the price will be either $27 or $16. The annual risk-free rate is 3%. Find the price of a call option on the stock that has a strike price is of $23 and that expires in 1 year. (Hint:Use daily compounding.) Round your answer to the nearest cent. Assume 365-day year. Do not round your intermediate calculations.

9. Binomial Model

The current price of a stock is $16. In 6 months, the price will be either $18 or $12. The annual risk-free rate is 3%. Find the price of a call option on the stock that has a strike price of $14 and that expires in 6 months. (Hint: Use daily compounding.) Round your answer to the nearest cent. Assume a 365-day year. Do not round your intermediate calculations.