a. Price the two options (call and put).

b. Price the same options as in (a), when the current stock price is $110(instead of $100).

c. Price the same options as in (a), when the strike price is $110 (instead of $100).

d. Price the same options as in (a), when the future prices are $140 and $60 (higher volatility).

e. Price the same options as in (a), when the interest rates are 5% (instead of 10%).

f. Price the same options as in (i), when the time to expiration is 6 months

Let us see for ourselves how the different determinants of option pricing impact the value of an option. We will start with our two basic options and then have one variable, that affects the price of the option, change each time. All options will be solved with a one-stage binomial tree. Type Stock Price Strike Price Future Prices (Volatility) Time to expiration Interest rate Call 100 100 u=1.2, d=0.8 1 year 10% Put 100 100 u=1.2, d=0.8 1 year 10%