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Assume the Black-Scholes framework.

You are given the following information regarding a stock:

The current price of the stock is 100.

The stock pays no dividends.

The volatility of the stock is 20%.

Mr. PJ purchases 100 units of 1-year at-the-money European call option.

Miss WL purchases 100 units of 1-year gap call option with strike 105 and trigger 100.

The total amount that Mr. PJ pays for the purchase of options is 285.20 more than the total amount that Miss WL pays.

Calculate the continuously compounded risk-free interest rate.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92812775

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