A stock is priced at $50 with a volatility of 35 percent. A call option with an exercise price of $50 has an expiration in one year. The risk-free rate is 5 percent. Construct a table for stock prices of $5, 10, 15, ..., 100. Compute the Black ScholesMerton price of the call and the Euro- pean lower bound and verify that the former is at least as large as the latter. Use the spreadsheet BlackScholesMertonBinomial10e.xlsm.

The following option prices were observed for calls and puts on a stock for the trading day of July 6 of a particular year. Use this information in pro- blems 7 through 14. The stock was priced at 165.13. The expirations were July 17, August 21, and October 16. The continuously compounded risk-free rates associated with the three expira- tions were 0.0503, 0.0535, and 0.0571, respectively. Unless otherwise indicated, assume that the options are European.

CALLS PUTS STRIKE JUL AUG OCT JUL AUG OCT 155 10.50 11.75 14.00 0.19 1.25 2.75 160 6.00 8.13 11.13 0.75 2.75 4.50 165 2.695.25 8.13 2.38 4.75 6.75 170 0.81 3.25 6.00 5.75 7.50 9.00 CALLS PUTS STRIKE JUL AUG OCT JUL AUG OCT 155 10.50 11.75 14.00 0.19 1.25 2.75 160 6.00 8.13 11.13 0.75 2.75 4.50 165 2.695.25 8.13 2.38 4.75 6.75 170 0.81 3.25 6.00 5.75 7.50 9.00