Question 2 C: a) The Black-Scholes formula for a European call option on a non-dividend- paying stock is: c = SN(D, ) - Ke ""N(d) where In(S/X) + (r + o / 2)T d. oT and dz = d, -ONT = Required: Use the above Black-Scholes formula to find the value of a call option written on a non-dividend paying stock when the stock price is $100, the strike price is $100, the continuously compounded risk-free interest rate is 2% per annum, the time to expiration is 6 months and the volatility is 10% per annum. (30 marks) b) Suppose you buy a put option contract on October gold futures with a strike price of $1,800 per ounce. Each contract is for the delivery of 100 ounces. What happens if you exercise the put option when the October futures price is $1,760? (20 marks) [Total 50 marks]