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Consider the following European options which currently trade on Dog Corp shares: Put Type Call Call Put Underlying Asset 1 Dog Corp 1 Dog

 


Consider the following European options which currently trade on Dog Corp shares: Put Type Call Call Put Underlying Asset 1 Dog Corp 1 Dog Corp 1 Dog Corp 1 Dog Corp share share Strike $100.00 $80.00 share $100.00 share $80.00 Maturity 1 year 2 years 1 year 2 years Current Value $6.77 ? $22.25 $11.20 (a) (b) If the risk-free interest rate is 10% per annum for all maturities and Dog Corp is not expected to pay any dividends over the next three years, what is the current value of the 2 year European call option? A friend says to you... "The writer of the one year European put option does not want the option to have a positive intrinsic value at maturity" What do you think?

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