Consider the situation where the Olympus stock price 3 months from the expiration of an option is $56 dollars, the exercise price of the option is $54 dollars, the risk-free rate is 3% per annum, and the volatility is 36% per annum.

1. CalculatethepriceoftheEuropeanCallandEuropeanPut,respectively.

2. If the quoted price of the call is $5.78, can you argue that the call is undervalued?

3. If the quoted price of the put is $4.95, can you argue that the put is overvalued?

4. Show by the means of well-drawn diagrams that Option-Pricing is a ZERO-SUM game. Explain your answers analytically.

5. What do we mean by the term Put Call Parity Condition? Carefully explain your answer.