Suppose the spot exchange rate for Narnian currency is trading for $2/N and one year later it

Question:

Suppose the spot for Narnian currency is trading for $2/N and one year later it can go up to $2.5/N, an increase of 25 percent, or down to $1.80/N, a decrease of 10 percent. Assume a call option with an exercise price of $2.05/N. Assume initially that the U.S. interest rate is 1 percent and that the Narnian interest
* rate is 5 percent. Assume that the interest rate is based on annual and round at the fifth decimal place.
a. Compute the call price.
b. Compute the put price.
c. If the Narnian interest rate falls immediately, what happens to the call and put prices? Compounding
Compounding is the process in which an asset's earnings, from either capital gains or interest, are reinvested to generate additional earnings over time. This growth, calculated using exponential functions, occurs because the investment will... Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...