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# Put and Call Options, Futures

5. You note that Sony stock is selling at \$25. Each month, it either goes up 10% or down 8%. The interest rate is 1% per month.
a. What is the value of a two-month call option to buy Sony at \$26?
b. What is the value of a two-month put option with an exercise price of \$26?

6. You note that platinum sells for \$750 per ounce and know that it will sell for either \$850 or \$750 in one year. There are call options and put options for platinum. There are also futures markets for platinum. The safe rate of interest is10%. You can ignore all storage and transportation costs.
a. You observe a derivative contract (some unknown combination of calls, puts, written calls, written puts) that pays off \$90 if platinum is selling for \$850 in a year and pays off \$110 if is selling for \$750. In a competitive market with no arbitrage opportunities, what should the cost be for this derivative?
b. Also in a competitive market with no arbitrage opportunities, what should the futures contract for delivery of one ounce of platinum in one year be selling for today?

#### Solution Summary

Binomial tree has been used to calculate the values of put and call options. Also a futures contract is valued.

\$2.19