Reference no: EM132443096

Question 1: Suppose Microsoft's 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?

Question 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)

Question 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 current stock price of Nomura be in order to prevent arbitrage?

Question 4: On October 31, 2011, the following options on Apollo Group stock, all expiring in December 2011, sold for the following prices:

Options          Exercise Price                      Option Premium

Call                 $45                                         $7.90

Put                  $50                                         $1.25

Call                 $55                                         $1.70

You 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?