1. Last year, BuyThemAll Corporation sold a share, in a piece of land it owned, for 110 million. As part of the negotiations, the buyer was given a put option to sell its share in the land back to BuyThemAll for 110 million and BuyThemAll paid 20 million for a call option to repurchase the share in the land for the same price. Based on this information, answer the following questions:

1. What happens if the land is worth more than 110 million when the options expire?

(5 marks)

2. What happens if the land is worth less than 110 million when the options expire?

(5 marks)

3. Plot a payoff diagram showing the net effect of the land sale and the option transactions.

(5 marks)

4. Assume that both a European put and a European call option mature in one year. Using the put-call parity relationship, calculate the continuously compounded interest rate (show all the details of your calculations and display the results with four decimal places).