1. 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. (See Appendix for the Cumulative Normal Distribution Table)

   (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 THE SECOND QUESTION