(risk neutral) Question 3 So (ang) SH SL A share of MSFT is trading at $30. In 6 months it will either go up by $10 or down by $8. In the following 6 months it will again either go up by $10 or down by $8. During this period MSFT will pay no dividends. The 6 month interest rate on Treasuries is 1.5% and will stay that way for the full year. (a) Value a European put option on MSFT with a strike price of $35. (9 marks) (b) Value an American put option on MSFT with a strike price of $35. Comment on the additional option value an American option provides. Do all American options provide additional value? ? > not necessarily (9 marks) (c) Briefly discuss how and why a call option value changes with volatility and time to expiration. (7 marks) (risk neutral) Question 3 So (ang) SH SL A share of MSFT is trading at $30. In 6 months it will either go up by $10 or down by $8. In the following 6 months it will again either go up by $10 or down by $8. During this period MSFT will pay no dividends. The 6 month interest rate on Treasuries is 1.5% and will stay that way for the full year. (a) Value a European put option on MSFT with a strike price of $35. (9 marks) (b) Value an American put option on MSFT with a strike price of $35. Comment on the additional option value an American option provides. Do all American options provide additional value? ? > not necessarily (9 marks) (c) Briefly discuss how and why a call option value changes with volatility and time to expiration. (7 marks)