Answer:
Explanation:
Complete question
Consider an option on a non-dividend-paying stock when the stock price is $30, the exercise price is $29, the risk-free interest rate is 5% per annum, the volatility is 25% per annum, and the time to maturity is four months.
a) What is the price of the option if it is a European call?
b) What is the price of the option if it is an American call?
c) What is the price of the option if it is a European put?
d) Verify that put-call parity holds.
The solution can be seen in the attached picture.
