QUESTION 8

Consider two "corresponding" options, consisting of a call and a put with the exact same parameter values. For this pair, the current price of the underlying asset is $86, the options have an exercise price of $89 and they expire in 10 months. Additionally, the risk-free rate is 7% p.a. What is the difference between the premium of the put option, P, and the premium of the call option, C; that is, what is the value of P - C? Write the answer with two decimals; e.g., 3.24. Do NOT use the $ symbol in your answer; just write a numerical value. Of course, include the negative sign if the answer is negative; but do not include the positive sign if the answer is positive. NOTE: Use the continuous time version of the Put-Call Parity equation

QUESTION 9

A European PUT option written on one share of Deadwood Lumber Co. stock has the following parameter values: S = $28, X = $30, r = 5% p.a., sigma = 30% p.a., T = 3 months. Find the premium of this option, rounded to 2 decimals (e.g., 1.15; do NOT include a dollar sign in your answer). NOTE: Use the continuous time version of the Black-Scholes and Put-Call Parity equations

QUESTION 10

A put option expires $23 in the money, meaning that the option's payoff is $23. What is the payoff at expiration of the "corresponding" call option; that is, a call option with the exact same parameter values as the put option?