American Airlines Group Inc., (AAL) through its subsidiaries, operates as a network air carrier. It provides scheduled air transportation services for passengers and cargo. Assume you have been given the following information on American Airlines.

Current stock price is $30

Exercise price is $25

Time to expiration is 4 months

Risk-free rate is 5%

Variance is 0.35

Required:

a. Using the Black-Scholes option pricing model, calculate the price of a call option on American Airlines.

b. Using the Black-Scholes option pricing model, calculate the price of a put option on American Airlines.