Q1. The current price of the stock is $30, the strike price is $25, the volatility is20%, the expected return on the stock per annum is9% and the time to expiration isfive years.What is the probability of a call beinginthe money?

Q2. A tradersellsfiveEuropeanputoptionswith a strike price of$55andbuys fourputoptions on the same stockwith a strike price of$60. Both options have the samematurity date.The price of theformer put optionis $3.5, whiletheprice of the latteris$4.5.draw a table and a diagram illustrating the profit at termination from these positions for various levels in the price of the underlying.On one chart draw a graph showing the profit for the put, call and combined position.

Q3.The strike price for a European call and put option is $55and the expiration date for the call and the put is inthreemonths.The call and the put both sell for $6.The price of the stock underlying the call and the put is $54and the risk free rate is4% per annumbased on continuous compounding.Identify any arbitrage opportunity and explain what the trader should do to capitalize on that opportunity.In the event you determine an arbitrage opportunity exists, calculatepossible payoffs from the arbitrage strategy.

Q4Use the Black-Scholes option pricing model to value a Europeancallon a stock that does not pay dividends.The underlying stock is currentlyselling for43.The annual risk-free interest rate (based on continuous compounding) is5%.Assume the strike price is $45, the option will expire in3years, and the volatility value is28%.