1. Below is a two-period price tree of MNO Stock.

Now 1 2

61.07

55.26

50 50.00

45.24

40.94

Using the binomial model, calculate the fair value of a European call option on MNO stock with the following characteristics:

Strike price = 45

Risk-free rate = 3% (per sub-period)

1. Calculate the d₁and d₂ values fromthe Black-Scholes formula when

Spot price of asset = 80

Strike Price = 75

Time to maturity = One year

Risk free rate = 4%

Volatility = 35%

1. Explain the difference between the Straddle and Strangle Option Trading Strategies.