The Current stock price is 70, the annual stock volatility is 35%, and the annual

dividend yield is= 0. The current risk-free interest rate is 1%.

(a) Calculate the Black-Scholes prices of call options with strikeK= 70 and maturity of 1, 2, 5, 10, 50, and 100 years. What will happen to call option prices as the time to maturity keeps increasing?

(b) Keeping every other parameter constant, suppose the dividend yield is now= 0.01 = 1%. Calculate call option prices for strikeK= 70 at the above maturities. What happens to option prices as time to maturity increases?

(c) What accounts for the difference between (a) and (b)?