Question 1: Use the Black-scholes formula to find the price of a three-month European call option on a non-dividend-paying stock with a current price of $50. Assume the exercise price is $51, the continuously compounded riskless interest rate is 8% per year, and standard deviation is .4.
Question 2: What is the composition of the initial replicating portfolio for this call option?
Question 3: Use the put-call parity relation to find the Black-Scholes formula for the price of the corresponding put option.