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1. a.) You observe the stock of company ABC. This can either be 120 or 90...

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a.) You observe the stock of company ABC. This can either be 120 or 90 next year. You buy a Call European option wit strike 100 for the coming year. What are the possible payoff from this option? What is the price of this option today? In the market the risk free rate is 5%.

b.) You bought a put option with a strike of 100. The underlying can take values of 120 or 50 next period. The risk free rate is 5%. What is the price of the put option? What is the price of a call option with the same strike and the same underlying? Would it be profitable to make a straddle in this case?

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