A. What would happen in the options market if the price of an American call were less than the value Max (0, S0 X)? Would your answer differ if the option were European? Explain. (5 Marks) B. Critique the following statement made by an options investor in American call option: My call option is very deep in-the-money. I dont see how it can go any higher. I think I should exercise it. (5 Marks) C. Why do higher interest rates lead to higher call option prices but lower put option prices? (5 Marks) D. Suppose a European put price exceeds the value predicted by putcall parity. How could an investor profit? Demonstrate that your strategy is correct by constructing a payoff table showing the outcomes at expiration. (5 Marks) E. Consider a two-period, two-state world. Let the current stock price be 45 and the risk-free rate be 5 percent. Each period the stock price can go either up by 10 percent or down by 10 percent. A call option expiring at the end of the second period has an exercise price of 40. 1. Find the stock price sequence. 2. Determine the possible prices of the call at expiration. 3. Find the possible prices of the call at the end of the first period. 4. What is the current price of the call? (5 Marks)