1. Which of the following options will have a higher price and why?
a. A call option with an exercise price of $50 and 3 months to expiration, or a call option on the same underlying stock with the same time to expiration but with an exercise price of $53.
b. A put option with an exercise price of $70 and 3 months to expiration, or a put option on the same underlying stock with the same time to expiration but with an exercise price of $78.
c. A put option with an exercise price of $70 and 6 months to expiration, or a put option on the same underlying stock with the same exercise price but with 9 months to expiration.
2. The present value of a perpetuity due with level annual payments and interest i is X. The present value of a perpetuity immediate with the same payments and interest rate is 1.05 X. Find i.