Consider an option on a non-dividend paying stock when the stock price is $90

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Consider an option on a non-dividend paying stock when the stock price is $90

Consider an option on a non-dividend paying stock when the stock price is $90, the exercise price is $98 the risk-free rate is 7% per annum, the volatility is 49% per annum, and the time to maturity is 9-months.

a. Compute the prices of Call and Put option on the stock using Black & Scholes formula.

b. Using above information, does put-call parity hold? Why?

c. What happens if put-call parity does not hold?

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Consider an option on a non-dividend paying stock when the stock price is $90

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