1) The given information is given about options on stock of the certain company:
S0 = $20, X =$20, r =5% (c.c.), T = 0.5 year, σ = 0.20
No dividends are expected. One option contract is for= 100 shares of stock. All notations are used in the similar method as in Black-Scholes-Merton Model.
Answer the following problems:
i) Determine European call option price and European put option price, according to Black-Scholes model?
ii) Compute the cost of buying the protective put?
iii) Compute the cost of writing the covered call?
2) What will be = payoff and profit of = protective put if stock price on maturity is= $16, $18, $20, $22, or $24?