Provide solutions. to the following questions.
2. Suppose you are given (a) S(0) = 100 (b) Stock price S(t) follows the BS model (c) The stock pays continuous dividend at a rate of 0.04 (d) The continuously compounded risk free rate is 0.06 i. (4 pt) Consider an European call option with strike price $110 and time to mature is 6-month. Calculate the option price ii. (4 pt) What is the probability that option will expire in the money? ini. (4 pt) Given that stock price is less than strike price, what is the expect value of stock price? iv. (4 pt)Instead of European call option, if we price a put option with same characteristics, what would be the value of the put option?The following graph input tool shows the daily demand for hotel rooms at the Big Winner Hotel and Casino in Las Vegas, Nevada. To help the hotel management better understand the market, an economist identified three primary factors that affect the demand for rooms each night. These demand factors, along with the values corresponding to the initial demand curve, are shown in the following table and alongside the graph input tool. Demand Factor Initial Value Average American household income $50,000 per year Roundtrip airfare from San Francisco (SFO) to Las Vegas (LAS) $200 per roundtrip Room rate at the Lucky Hotel and Casino, which is near the Big Winner $250 per night2. Suppose you are given: (a) 8(0) = 100 (b) Stock price Slt) follows the BS model (c) The stock pays continuous dividend at a rate of 0.04 (d) The continuously compounded risk free rate is 0.06 (i.) Consider an European call option with strike price $110 and time to mature is 6-month. Calculate the option price (ii.) What is the probability that option will expire in the money? iii. Given that stock price is less than strike price, what is the expect value of stock price? iv. Instead of European call option, if we price a put option with same characteristics, what we iv.) Instead of European call option, if we price a put option with same characteristics, what would be the value of he put option? Firms in the perfectly competitive constant cost widget industry have access to technology that allows them to produce widgets at a cost of C(q) = 300 + 10q + 3q2, with sunk costs of 225. Demand for widgets is Q = 1300 - 10P. a) The industry is currently in a long-run competitive equilibrium. What is the market price and quantity that each firm produces? How many firms are there currently operating in the industry. b) Illustrate the current state of the industry on carefully drawn and labeled graphs of the typical firm's marginal and average costs and the market. c) What is the short-run market supply curve for the industry? d) Suppose that demand for widgets changes to Q = 1540 - 10P. What will happen to the price in the short-run? What will happen to the price in the long-run
