1. What is the future value of $5,000 invested for 4 years at 7.5% interest compounded continuously?

2. What is the present value of $20,000 to be received in 3 years at a 9% discount rate compounded continuously?

3. A stock sells for $110. A call option on the stock has an exercise price of $105 and expires in 43 days. If the interest rate is 0.11 and the standard deviation of the stocks return is 0.25.

a) Calculate the call using the Black-Scholes model

b) What would be the price of a put with an exercise price of $140 and the same time until expiration?

c) How does an increase in the volatility and interest rate changes affect the underlying stocks return on an options value? Explain.