1.Suppose that the spot price of the Canadian dollar is U.S. $0.95 and that the Canadian dollar/U.S. dollar exchange rate has a volatility of 8% per annum. The riskfree rates of interest in Canada and the United States are 4% and 5% per annum, respectively.(6 points)
N(0.0429)= 
0.5171 
N(0.0264) 
0.4895 

N(0.0429)= 
0.4829 
N(0.0264)= 
0.5105 

N(0.1429)= 
0.5568 
N(0.0736) 
0.5293 

N(0.1429)= 
0.4432 
N(0.0736)= 
0.4707 

N(0.2429)= 
0.5960 
N(0.1736) 
0.5689 

N(0.2429)= 
0.4040 
N(0.1736)= 
0.4311 
a.Calculate the value of a European call option to buy one Canadian dollar for U.S. $0.95 in nine months. (4 points)
b. Use putcall parity to calculate the price of a European put
option to sell one Canadian dollar for U.S. $0.95 in nine months.
(2 points)
S_{0 =} 0.95 , K =0.95 , r =0.05 , rf = 0.04 , = 0.08 , T =0.75
D1=( ln(0.95/0.95) + (0.050.04+0.0064/2)*0.75) /(0.08*0.75^^{1/2}) = 0.1429
D2= D1 (0.08*0.75^^{1/2}) = 0.0736
N(D1)= 0.5568 N(D2) = 0.5293 from table
Value of the call
c = 0.95e^{0.04×0.75}×0.5568  (0.95e^{0.05×0.75}×0.5293) = 0.0290 = 2.90 cents
b) Using put call parity
P + S_{0}e^{rfT} = C + Ke^{rT } P = price of put
P = 0.029 + 0.95e^{0.05*9/12}  0.95e^{0.04*9/12} = 0.0221 = 2.21 cents
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