For an economy with two states the following state prices are given: p=0,48 and p=0.47,

b) What is the present value of an equivalent forward (ie with the same exercise price)?

a) Consider a one period call option with state dependent payoffs cy=8.35 and c = 0. The risk-free rate is, according to the state prices 5.3%. The exercise price is X = 60. Calculate the present value of the call option given the present value of the underlying is U-50.

Exercise 4 (10 points)