à Moving to another question will save this response. Question 8 The relationshi

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à Moving to another question will save this response. Question 8 The relationshi p between a value of a call and (1) the stock price, and (2) the stock price volatility (standard deviation) is the call value is positively related to the stock price, and negatively related to the volatility the call value is negatively related to the stock price, and positively related to the volatility. 0 the call value is negatively related to both variables. O the call value is positively related to both variables. > Moving to another question will save this response DE 4

Explanation / Answer

Question 6:

Put-call parity formula: Call premium + Strike price/(1+rate)time = Price of underlying + Put premium

$31 + $100/1.02 = Price of underlying + $8

Price of underlying = $121

Question 7:

End-0f-period forward rate/ Current spot rate = (1+Y)/(1+X)  

When Spot rate is given as rate for 1 unit of currency of country X

1.373/1.4 = (1+Y)/(1+4%)

Y = 2%

Question 8:

Higher volatility would mean more fluctuation in the market and this tends to increase the option prices

More the stock price rises, more in the money the options become and their value therefore increases.

Question 9:

Use =normsdist(-0.85) in excel to get N(d1) = 0.1977

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