1. A non-dividend paying stock is trading at €100. A European call option on this stock has two years to mature. The periodically compounded risk-free interest rate is 3%, the exercise price of the option is €100. The up factor is 1.25, and the down factor is 0.80. The risk-neutral probability of an up move is 0.51. The call option value is closest to:
2. Which of the following statements is correct?
A. Interest rate options’ valuation follows the expectations approach.
B. A put option on interest rates will be in the money when the spot rate is above the exercise rate.
C. A call option on interest rates will be in the money when the spot rate is below the exercise rate.
3. Call option value based on the BSM model is given as:
A. the bond component minus the stock component.
B. the stock component minus the bond component.
C. the stock component plus the bond component.