Suppose Robbins Co. stock is selling for $41 per share. Puts and calls with an exercise price of $40 are available on Robbins. The risk risk-free rate is 8%. The time to maturity of the puts and calls is 3 months (i.e., t = .25). The volatility of Robbins’ stock returns is 30% (i.e., σ = .30).
a) Use the Black-Scholes equation to determine the prices of the call and put.
b) Suppose the time to maturity of the puts and calls changes to 6 months (i.e., t = .50). Use the Black-Scholes equation to determine the prices of the call and put.
c) Suppose the time to maturity changes back to 3 months (i.e., t = .25)?, but the exercise price changes to $50. Use the Black-Scholes equation to determine the prices of the call and put.
d) Suppose the time to maturity and the exercise price revert back to the original amounts in the questionn, but the volatility of Robbins’ stock returns changes to 40% (i.e., σ = .40). Use the Black-Scholes equation to determine the prices of the call and put.
*All answers must be rounded to three decimal places