Question no:1 The following quotes were observed for options on a given stock on June 10 of a given year. These are American calls except where indicated. ( 35marks) Calls Puts Strike June Aug Sep June Aug Sep 102 8.40 10 11.50 5.30 1.30 2.00 112 4.40 7.10 8.30 0.90 2.50 3.80 115 1.50 3.90 5.30 2.80 4.80 4.80 The stock price was 125. The risk-free rates were 7.30 percent (June), 7.50 percent (August) and 7.62 percent (September). Assume no dividends unless indicated. The expiration dates are June 21, Aug 15 and Sept 22. 1. Compute the intrinsic value and the time value and the lower bound of the following altreat these as American options for the purpose of determining the intrinsic values and tintes et and and as Eropean for the purpose of Lower bound (Basing Rorar Univer Kingdom of Sep with an Exercise price 115 and Aug with an Exercise price 112 (20 marks) 2. Compute the intrinsic value and the time value and the lower bound of the following put. Treat these as American options for the purpose of determining the intrinsic values and time value and as European for the purpose of Lower bound Sept with an Exercise price 102 and June with an Exercise price 112 (20 marks) 3. Checks the following combinations of puts and calls and determine whether they conform to the put call parity rule for the European options. If you see any violations suggest a strategy. Aug with an Exercise price 112 (20 marks) 4. Consider a hypothetical company with no risk. Will people will be willing to invest money in this company if they expect no return? Why and why not? (10 marks)