Question 3 [Binomial Option Pricing Model] {25 Marks] J An American put futures option has a strike price of $1155 and a time to maturity of 1 year. The current futures price is 50.151]. The volatility of the futures price is 25% and the interest rate [with continuous compounding} is 5% per annum. Use a four step tree to value the option. lI'Siuestion 4 {Black-ScholesMerton Model} [15 Marks] Consider an option on a non-dividend-paying stock when the stock price is $19. the exercise price is $20. the risk-free interest rate is 1.5% per annum {continuous compoundingL the volatility is 20% per annum, and the time to maturity is one year. a] What is the price of the option if it is a European call? is} What is the price if it is a European put [hint: use putcall parity}? 1:] Is there another way to calculate the put price? Explain. d]: Explain the concept and the assumptions underlying the BlackScholes-Merton Pricing formula

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