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The following information applies to the next two questions. One-year interest rates are 5%. A stock...

The following information applies to the next two questions.

One-year interest rates are 5%. A stock currently sells for $40 and will either rise to $50 or fall to $35 in six months.

8. Using the binomial option pricing model, determine the fair value of a $45 call.

     

           a. $1.45

           b. $1.95

           c. $2.75

           d. $3.45

9.   Using the binomial option pricing model, determine the fair value of a $45 put.

            a. $3.89

            b. $4.78

            c. $5.86

            d. $6.54

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