1. a) A stock sells for $125. A call option on the stock has an exercise price of $110 and expires in 3 months. If the interest rate is 0.15 and the standard deviation of the stocks return is 0.30.

   What would be the price of a put option on the same stock with an exercise price of $140 and the same time (3 months) until expiration? Show all workings.

   (10 marks)

2. b) Let the spot rate be Yen 100 / $ and the 3-month forward rate be Yen 99/$. Compute the interest rate differential between the U.S. and Japan at which interest rate parity will hold true. PLEASE ANSWER QUESTION 1 using the distribution table provided