Week 1: Individual Assignment (Problem Solving)1. Suppose Microsofts stock price is currently at trading at $25. Six-month call option on the stock with an exercise price of $22.50 has a value of $3.80. What is the price of an equivalent put option if the risk free interest rate is 6% per annum?2. Cola Company has call options on its common stock traded in the market. The options have an exercise price of $45 and expire in 156 days. The current price of the Cola stock is $44.375. The risk free rate is 7% per year and the standard deviation of the stock returns is 0.31.a. What is the value of the call on Cola Company, assuming that it is a European call?b. What is the value of the put option on Cola Company with the same exercise price and maturity date? (Hint: Use put call parity theorem) 3. Nomura has both European calls and puts traded on the Chicago Board of Trade. Both options have the same exercise price of $60 and expire in 3 months. Nomura does not pay any dividend. The puts and calls are selling for $4 and $6.50 respectively. The risk free rate is 6% per annum. What should the currentstock price of Nomura be in order to prevent arbitrage?4. On October 31, 2011, the following options on Apollo Group stock, all expiring in December 2011, sold for the following prices:OptionsExercise PriceOption PremiumCallPutCall$45$50$55$7.90$1.25$1.70You buy one call (one contract is 100 shares) with $45 exercise price, buy two puts with $50 exercise price, sell one call with $55 exercise price.What is your net profit (loss) if Apollo Group stock price is $48 at expiration?
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