Black-Scholes-Merton model:

Spot Price: 66

Strike Price: 68

RFR: 6%

Using the information given above regarding the spot and strike price, risk-free rate of return and the fact that the volatility of the share price is 18%, answer following questions:

a.What is the price of an eight-month European call? [1 mark]

b.What is the price of an eight-month American call? [1 mark]

c.What is the price of an eight-month European put? [1 mark]

d.How would your result from k. change if a dividend of $1 is expected in three months? How would your result from k. change if a dividend of $1 is expected in ten months? [2 marks]

Note for calculations with the BSM model: Keep four decimal points for d1 and d2. Use the Table for N(x) with interpolation in calculating N(d1) and N(d2).