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3. The shares of ABC company are currently priced at 4.15. Call options on ABC stocks currently have an exercise price of 4 that expire

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3. The shares of ABC company are currently priced at 4.15. Call options on ABC stocks currently have an exercise price of 4 that expire in 3-months' time. The prevailing risk free interest rate is 5%, and the volatility of the stock price is 0.22.4 a. What is the price of a call option on ABC stock under the Black-Scholes-Merton pricing model? (10 marks) b. What is the price of a put option on ABC stock, given a strike price of 4 and expiry date 3-months hence? (5 marks) c. Assuming that you held 50,000 stocks for ABC. How would you construct a delta neutral hedge using ABC calls? (10 marks)

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