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Read the case carefully and answer the questions given at
the end:
CALLS PUT
A B
C
Months of expiration 3 9
3
Continuous yearly risk-free
Rate (Rf) 10% 10%
10%
Discrete yearly Rf 10.52%
10.52% 10.52%
Standard deviation of
Stock returns 40% 40%
40%
Exercise price Rs.55
Rs.55 Rs.55
Option price Rs.2.56 -
Rs.6.20
Stock price Rs.50
Rs.50 Rs.50
Cash Dividend Re.0 Re.0
Re.0



1) Why should call B sell for more than call A?
2) Is the put call parity model working for options
A&C?
3) Calculate the Black Scholes values of call A & Call
B?


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