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You are given the following information of a call option on a stock: The expected return on the stock is 30% compounded continuously. The continuously

You are given the following information of a call option on a stock:

The expected return on the stock is 30% compounded continuously.

The continuously compounded risk-free interest rate is 2%.

The call elasticity is 2.3.

(a) Find the risk premium on the option. [.644]

(b) Find the expected annual continuously compounded return on the call option. [.664]

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