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# Edit questionSuppose that there are two periods: T=0, and T=1. We consider stocks A and B. Neither of the

two stocks pay any dividend. In period 0, the price of stock A is S_a_0 = 99.5, the price of stock B is S _b_0 = 94. The one-period risk-free rate in period 0 is denoted by r_0. In T=1, there are two states: "up" and "down". State "up" occurs with probability 0.6; State "down" occurs with probability 0.4. The prices of the two stocks in T=11 is given by the following table. The one-period risk-free rate in T=1 r_1 is 5%.

___ up down

s_a 110 100

s_b 100 85

Let C(100) be the price of a European call option on stock A that expires in T=2 with the strike price 100.

Let P(100) be the price of European put option on stock A that expires in T=2 with the strike price 100.

(a) Solve for r_1

(b) Calculate C(100) − P(100)

Suppose that there are two periods: 0, and 1. We oonsider stocks A
and 13. Neither of the two stocks pay any dividend. In period 0, the prioe of stock A is \$ = 99.5, the prioe of stock B is SE = 94.
The one-period risk-free rate in period I] is denoted by r“. In period 1, there are two states: “up&quot; and “down&quot;. State “up&quot; occurs with
probability 0.6; Stats “down&quot; occurs with probability 0.4. The prises of the
two stocks in period 1 is given by the following table. The one-period risk-free rate in period 1 r1 is 5%. “up&quot; “down&quot;
3&quot; 110 90
S&quot; 100 35 Let 01100) be the priee of a European call option on stock A that expires in
period 2 with the strike price 100. Let P(l{]ﬂ) be the price of European put option on stock A that expires in
period 2 with the strike price 100. (a) Solve for n (b) Calculate C(100) — Puss)

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